Question

The Distribution Center of 123 Oil and Gas Company wants a master budget for the next three months, beginning January 1st. It desires an ending minimum cash balance of $4,000 each month. Sales are forecasted at an average selling price/transfer price of S4 per widget. In January, the Distribution Centre is beginning just-in-time deliveries from suppliers, which means that purchases equal expected sales. The December 31 inventory balance will be drawn down to $5,000, which will be the desired ending inventory thereafter. Purchase price per widget is $2. Purchases during any given month are paid in full during the following month. All sales are on credit, payable within thirty days, but experience has shown that 60 percent of current sales are collected in the current month, 30 percent in the next month, and 10 percent in the month thereafter. Bad debts are negligible. The Distribution Centre sells to related sister corporations as well as outside/external sales. The following are some of the expenses for the Distribution Centre: Wages and salaries Insurance expired Depreciation Miscellaneous Rent $12,000/month 100/month 200/month 2,000/month 200/month + 10% of quarterly sales over $10,000 Cash dividends of $1,000 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $200 is paid at the beginning of each month and the additional 10 percent of sales is paid quarterly on the tenth of the month following the quarter. The next settlement is due January 10. The company plans to buy some new office fixtures for $2.000 cash in March. To the distribution company this will be considered a capital purchase. Money can be borrowed and repaid in multiples of $500, at an interest rate of 12 percent per annum. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing takes place at the beginning, and repayment at the end, of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.

Problem: Complete the Purchase Budget (below) using Excel: Provide the formula cell view rather than the numerical answer.

Purchase Budget

	December	January	February	March
Desired Ending Inventory
Cost of Goods Sold
Total Needed
Beginning Inventory
Purchases

Answer 1

fox X 123 Oil and Gas Company- Purchase Budget A1 A В с D E F G Н K 123 Oil and Gas Company- Purchase Budget 1 Particulars December February March Remarks January 3 5,000.00 $ 5,000.00 It is given that from January the desired value of inventory will be $ 5,000 31,250.00 $ $ 5,000.00 $ 4(A) Desired Ending Inventory 50,000.00 $ 30,000.00 Sales amount given in the question $ 20,000.00 $ 60,000.00 $ 5 (B) Sales 7,500.00 Since it is given that selling price per unit is $4, number of units sold is (C) Sales in units [(B)/4] 5,000.00 12,500.00 15,000.00 arrived by dividing sales amount with $4 6. 15,000.00 Cost of Goods Sold-Units sold* Purchase price (D) Cost of Goods Sold [(C)*2] $ 10,000.00 $ 25,000.00 $ 30,000.00 $ Since purchase price per unit is given as $2, Cost of goods sold is number of 7 20,000.00 It is the amount required to meet desired inventory and sales. Hence this is arrived by adding Desired inventory and Cost of Goods Sold 41,250.00$ 35,000.00 $ (E) Total Needed [(A) + (D)] $ 30,000.00 $ 8 12,500.00 $ 31,250.00 $ 5,000.00 It is closing inventory of Previous month carried forward (F) Beginning Inventory $ 6,250.00 $ 9 (G) Purchases [(E) - (F) 15,000.00 It is amount needed reduced with opening stock available. If amount of Opening stock is more than amount needed, then purchases are NIL $ 28,750.00 $ $ 28,750.00 $ 10 31,250.00 $ 6,250.00 $ 5,000.00 Closing Stock $ 5,000.00 $ 11 (H) Closing Stock [(F)+(G)-(D)] Opening stock + Purchases Cost of Goods Sold 12 13 Formula Used in Above Table February 5,000.00 $ 60,000.00 $ 14 Particulars December March Remarks January 15 (A) Desired Ending Inventory 31,250.00 $ 20,000.00 $ =C5/4 5,000.00 $ 50,000.00 $ =D5/4 5,000.00 It is given that from January the desired value of inventory will be $ 5,000 30,000.00 Sales amount given in the question $ 16 (B) Sales $ Since it is given that selling price per unit is $4, number of units sold is arrived by dividing sales amount with $4 Cost of Goods Sold=Units sold * Purchase price Since purchase price per unit is given as $2, Cost of goods sold is number of units of sales multiplied with $2 It is the amount required to meet desired inventory and sales. Hence this is arrived by adding Desired inventory and Cost of Goods Sold It is closing inventory of Previous month carried forward It is amount needed reduced with opening stock available. If amount of Opening stock is more than amount needed, then purchases are NIL. Closing Stock Opening stock + Purchases Cost of Goods Sold (C) Sales in units [(B)/4] =B5/4 -E5/4 17 |(D) Cost of Goods Sold [(C)*2]B6*2 =C6*2 D6*2 -E6*2 18 (E) Total Needed [(A) (D) -С4+С7 -B4+B7 =D4+D7 =E4+E7 19 12,500.00B11 20 (F) Beginning Inventory (G) Purchases [(E) (F) $ -С11 =D11 -MAX(B8-B9,0) -МАX(C8-C9,0) MAX(D8-D9,0) =MAX(E8-E9,0) 21 22 (H) Closing Stock [(F)+(G)-(D)] =D9+D10 -D7 =E9+E10-E7 -B9+B10-B7 =C9+C10-C7 Sheet1