Question

Project 2 - Case 4 40 points 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: Cashes January (actual) February (actual) March (actual) April May 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: Si per tie Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous $ 23,500 $ 15,300 $ 1,200 $ 1.500 $ 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

Davis Dry Goods Sales Budget April 41000 May 51000 Quarter 159000 Units Selling Price Total Sales June 67000 8 536000 328000 408000 1272000 Collections May June March April April 222000 82000 246000 102000 Quarter 222000 328000 408000 134000 1092000 May June Total 306000 134000 440000 304000 348000 Purchase Budget Units Ending Invent. May 51000 60300 April 41000 45900 86900 -36900 50000 5 250000 June Quarter 67000 159000 41400 41400 108400 200400 -60300 -36900 48100163500 5 5 240500 817500 111300 -45900 65400 5 327000 Beginning Inv. Purchase units Cost per Tie Total Purchase cost Purchase Payments May March April April 101500 125000 125000 163500 June Quarter 101500 250000 163500 327000 120250120250 283750 798750 May June Total 226500 288500

Cash Budget For the Quarter Ending June 30 Opening Balance Collections April 19000 304000 323000 May 10600 348000 358600 June 10200 440000 450200 Quarter 19000 1092000 1111000 226500 41000 23500 15300 3100 288500 51000 23500 15300 3100 26000 283750 67000 23500 15300 3100 Payments: Purchase Payments Sales Commissions Wages and Salaries Utilities Miscellaneous Land Purchased Dividends Total Payments Excess Cash over payments Financing Borrowing Repayment Interest Total Cash Balance 798750 159000 70500 45900 9300 26000 9000 1118450 -7450 9000 318400 4600 407400 -48800 392650 57550 6000 59000 -46559 -991 -47550 10000 65000 -46559 -991 17450 10000 6000 10600 59000 10200 10000 = 57550 - 6000 - 180 - X -0.02% 41370 = 1.02x x = 40559 0.02x = 811+ 180 = 1566 6000 x 0.01 x 3 = 180

1272000 Budgeted Income Statement For the Quarter Ending June 30 Sales Cost of Goods sold: Opening Inventory Purchased Closing Inventory Gross Margin 184500 817500 -207000 795000 477000 Sales Commissions Wages and Salaries Utilities Miscellaneous Insurance expense Depreciation Interest Expense Net Income 159000 70500 45900 9300 3600 4500 991 293791 183209 Statement of Retained Earnings For the Quarter Ending June 30 Beginning Net Income 177900 183209 361109 -9000 352109 Dividends Balance sheet As at June 30 Assets Cash Accounts Receivable Inventory Prepaid insurance Fixed assets, net Total Assets 10000 402000 207000 10800 170000 799800 Liabilities & Stockholders Equity Accounts Payable Bank Loan Capital Stock Retained Earnings Total Liabilities and Stockholders Equity 120250 18441 65000 - 46559 309000 352109 799800