Question

Davis Dry Goods distributes silk ties. You are in charge of creating Davis' master budget for the upcoming second quarter, April-June 2018. Davis desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows: January (actual) February (actual) March (actual) April Мay 22,000 June 33,000 July 37,000 August 41,000 September 51,000 67,000 46,000 37,000 34,000 The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed to equal 90 % of the next month's sales in units. The ties cost the company $5 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50 % in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month's sales are collected by month-end. An additional 75% is collected in the following month. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below: Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous $I per tie $ 23,500 S 15,300 S 1,200 $ 1,500 S 3,100 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Davis has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month , and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.

Answer 1

1.a.

Sales Budget
	April	May	June	Total
Budgeted Sales in Units	41,000	51,000	67,000	159,000
Selling Price per Unit	$ 8	$ 8	$ 8	$ 8
Budgeted Sales Revenue	$ 328,000	$ 408,000	$ 536,000	$ 1,272,000

b.

Schedule of Expected Cash Collections from Sales
	April	May	June	Total
March Sales	$ 222,000	0	0	$ 222,000
April Sales	82,000	246,000	0	328,000
May Sales	0	102,000	306,000	408,000
June Sales	0	0	134,000	134,000
Total Cash Collections	$ 304,000	$ 348,000	$ 440,000	$ 1,092,000

c.

Merchandise Purchases Budget
	April	May	June	Total
Budgeted Sales in Units	41,000	51,000	67,000	159,000
Add: Desired Ending Inventory	45,900	60,300	41,400	41,400
Total Inventory Needed	86,900	111,300	108,400	200,400
Less: Beginning Inventory	36,900	45,900	60,300	36,900
Required Purchases in Units	50,000	65,400	48,100	163,500
Cost per Unit	$ 5	$ 5	$ 5	$ 5
Budgeted Cost of Purchases	$ 250,000	$ 327,000	$ 240,500	$ 817,500

d.

Schedule of Expected Cash Disbursements for Merchandise Purchases
	April	May	June	Total
March Purchases	$ 101,500	$ 0	$ 0	$ 101,500
April Purchases	125,000	125,000	0	250,000
May Purchases	0	163,500	163,500	327,000
June Purchases	0	0	120,250	120,250
Total Cash Disbursements	$ 226,500	$ 288,500	$ 283,750	$ 798,750

e.

Selling and Administrative Expenses Budget
	April	May	June	Total
Sales Commission	$ 41,000	$ 51,000	$ 67,000	$ 159,000
Salaries and Wages	23,500	23,500	23,500	70,500
Utilities	15,300	15,300	15,300	45,900
Miscellaneous	3,100	3,100	3,100	9,300
Total Cash Expenses	$ 82,900	$ 92,900	$ 108,900	$ 284,700
Depreciation	1,500	1,500	1,500	4,500
Insurance	1,200	1,200	1,200	3,600
Total Selling and Administrative Expenses	$ 85,600	$ 95,600	$ 111,600	$ 292,800