CHAPTER 8 Budgeting for Planning and Control COLLABORATIVE LEARNING EXERCISE OBJ
ID: 2446257 • Letter: C
Question
CHAPTER 8 Budgeting for Planning and Control
COLLABORATIVE LEARNING EXERCISE OBJECTIVES 2, 3
8-41 Elsamen Company has been accumulating operating data in order to prepare an annual profit plan. Details regarding Elsamen’s sales for the first six months of the coming year are as follows:
Estimated Monthly Sales Type of Monthly Sale
January $475,000 Cash sales 15%
February 410,000 Credit sales 85%
March 500,000 April 525,000
May 620,000
June 660,000
Collection Pattern for Credit Sales Month of sale 30%
First month following sale 50 Second month following sale 15
Elsamen’s cost of goods sold averages 40 percent of the sales value. Elsamen’s objective is to maintain a target inventory equal to 30 percent of the next month’s sales. Purchases of merchandise for resale are paid for in the month following the sale. The variable operating expenses (other than cost of goods sold) for Elsamen are 10 percent of sales and are paid for in the month following the sale. The annual fixed operating expenses are presented below. All of these are incurred uniformly throughout the year and paid monthly except for insurance and property taxes. Insurance is paid quarterly in January, April, July, and October. Property taxes are paid twice a year in April and October. Annual Fixed Operating Costs Advertising $ 319,200 Salaries 971,000 Depreciation 220,000 Insurance 115,000 Property taxes 138,000 Required: Form groups of two or three. Within each group, calculate the following:
1. The amount of cash collected in March for Elsamen Company from the sales made during March.
2. Elsamen Company’s total cash receipts for the month of April.
3. The purchases of merchandise that Elsamen Company will need to make during February.
4. The amount of cost of goods sold that will appear on Elsamen Company’s pro forma income statement for the month of February.
5. The total cash disbursements that Elsamen Company will make for the operating expenses (expenses other than the cost of goods sold) during the month of April. (CMA adapted)
Explanation / Answer
1) sale cash and credit sale
1) Cash collected inmarch for
April
3) Purchases for feb
ending invenotory = $500,000 @30% = $150,000
opening inventory = $410,000 @30% = $123,000
COGS = $410,000 @40% = 164,000
purchases = COGS + ending - opening
= $164,000 + $150,000 - $123,000
= $191,000
4) COGS for feb = $164,000
5) Cash disbursement for operaitng expense for april
march expense 500,000 @10% paid in april = $28,600
Salaries ($319,200/12) = $80,917
Insurance (115,000/4) = $28,750
Property taxes (138,000/2) = $69,000
Total disbursement = $255,267
Cash sale 15% Credit sale 85% jan 71,250 403,750 feb 61,500 348,500 march 75,000 425,000 april 78,750 446,250