Master Budget:

ID: 2375680 • Letter: M

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Master Budget:

Pad 1:16 AM 40%. D B Da ezto.mhecloud.mograw- hill.com/hm.tpx 0.19 C Search View Content Pr 3100-PracticeExa Budget Project Homework Help BUDGET: ACCO submit assignment save & exit points ted, a distributor of earrings to You have just been hired as a new management trainee by Earrings Unli various retail outlets located in shopping malls across the cou n the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. o this end, you have worked wi accounting and other areas to gather the information assembled below. The company sells many styles of earrings, but all are sold for the same price-S14 per pair. Actual sales o e last three months and budgeted sales for the next six months follow earrings fo n pairs of ea ngs January (actual 21,400 June (budget) 51.400 February (actual 27,400 July (budget 31.400 41,400 August (budget) March (actual 29.400 April (budget) 66,400 September (budget 26,400 May (budget 01.400 The concentration of sales before and during May is due to Mothers Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month Suppliers are paid $8 for a pair of earrings. One-half of a onth of s purchases is paid for in the purchase; the o er hal is paid for in e following month. All sales are on credit, with no d iscount, and payabl n 15 days. The company has found, h at only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following h, and the rem ng 10% is collected in the second month following sale. Bad debts have been negligible Monthly operating expenses for the company are given below: Variable 6% of sales Sales commissions Fixed 98,600 Advertising Rent 6,600 104,600 Salaries Utilities 5,600 Insurance 600 Depreciation 2,600 Insurance is paid on an annual basis, in November of each year The company plans to purchase $14,800 in new equipment during May and $38,600 in new equipment during June; both purchases will be for cash. The company declares dividends of $12,000 each quarte payable in the first month of the following quarter panys ledger accounts as of March 31 is given below. A listing of the com Assets Liabilities and Stockholders' Equity S 205.600 Cash 120,000 Accounts payable Accounts receivable ($38,360 February $463,680 March sales 502,040 Dividends payable 2,000 Sales nventory 212,480 Capital stock 940,000 22,400 Retained earnings Prepaid insurance 594.000 Property and equipment (net) 894,680 $1,751,600 Total liabilities and stockholders' equity S1,751,600 Total assets $55,000. All borrowing is done at the beginning of a The company maintains a minimum cash balance of month; any repayments are made at the end of a month $1,000 at The company has an agreement wi a bank that allows the company to borrow in incre the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will hat interest is not compounded. At the end of the quarter, the company would pay the bank al ents of $1,000), w the accumulated interest on the loa and as much of the loan as possible (in incre still retaining at least S55,000 in cash Prepare a master budget fo e three-month period ending June 30. Include the following detailed budgets

Explanation / Answer

Learning Objective of the Article:

The master budget is a summary of company's plans that sets specific targets for sales, production, distribution and financing activities. It generally culminates in a cash budget, abudgeted income statement, and a budgeted balance sheet. In short, this budget represents a comprehensive expression of management's plans for future and how these plans are to be accomplished.

It usually consists of a number of separate but interdependent budgets. One budget may be necessary before the other can be initiated. More one budget estimate effects other budget estimates because the figures of one budget is usually used in the preparation of other budget. This is the reason why these budgets are called interdependent budgets.

Following are the major components or parts of master budget.

THE MASTER BUDGET INTERRELATIONSHIP

Sales Budget

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Ending Inventory Budget

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Production Budget

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Cash Budget

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Budgeted Income Statement

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Budgeted Balance Sheet

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Selling and Admn. Budget

Some advantages of a master budget are that it can give an idea of where a company wants to go and what it has to do in order to get there. It will also allow the company to realistically project future cash flows which in turn would help in getting certain types of financing.

Some disadvantages of a master budget include the time involved in producing such a budget. This is primarily the reason a smaller company may not make a master budget if the company has a very small managerial staff.

Learning Objective of the Article:

Define and explain the term "master budget".
What are the parts / components of master budget?
What are its advantages and disadvantages? Give example of master budget.

Definition and Explanation:

Parts | Components and Preparation of a Master Budget:

Following are the major components or parts of master budget.

THE MASTER BUDGET INTERRELATIONSHIP

Sales Budget

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Ending Inventory Budget

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Production Budget

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Direct Materials Budget Direct Labor Budget Overhead Budget

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Cash Budget

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Budgeted Income Statement

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Budgeted Balance Sheet

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Selling and Admn. Budget

Advantages and Disadvantages of a Master Budget:

Example of Master Budget:

:

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Master Budgeting- Review Bramble Corporation is a small wholesaler of gourmet fo

Master Budget:

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Explanation / Answer

Definition and Explanation:

Parts | Components and Preparation of a Master Budget:

Advantages and Disadvantages of a Master Budget:

Example of Master Budget:

:

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