Acct 205: Managerial Accounting Budget Spreadsheet Assignment (SLO #2 Assessment
ID: 2461868 • Letter: A
Question
Acct 205: Managerial Accounting
Budget Spreadsheet Assignment (SLO #2 Assessment)
CASE 9–30
Master Budget with Supporting Schedules [LO2, LO4, LO8, LO9, LO10]
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In 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. To this end, you have worked with 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—$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):
january (actual).... 20,000
Febuary (actual)... 26,000
March (actual)... 40,000
April (budget) 65,000
May (budget)... 100,000
June (budget)... 50,000
July (budgett)... 30,000
August (budget)...28,000
September (budget) 25,000
The concentration of sales before and during May is due to Mother's 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 $4 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.
monthly operating expenses for the company are given below:
variable
Sales commision 4% of sales
Fixed:
advertising... 200,000
Rent... 18,000
Salaries... 106,000
utiliries... 7,000
insurance... 3,000
Depreciation... 14,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.
A listing of the company's ledger accounts as of March 31 is given below:
Assets:
cash... 74000
Accounts recivable (26,000 february sales $320,000 March sales)... 346,000
Inventory.... 104,000
prepaid insurance... 21,000
Property and equipment... 950000
Total assets... 1,495,000
Liabilities
Accounts pay... 100,000
dividents pay.... 15,000
capital stock... 800,000
retained earnings... 580,000
Total liabilities... 1,495,000
The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows the company 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 $50,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
A sales budget, by month and in total.
A schedule of expected cash collections from sales, by month and in total.
A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
A schedule of expected cash disbursements for merchandise purchases, by month and in total.
A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
A budgeted balance sheet as of June 30.
EARRINGS UNLIMITED Budgeted Balance Sheet June 30 Assets Cash Accounts receivable Inventory Prepaid insurance Property and equipment, net Total assets Liabilities and Equity Accounts payable, purchases Dividends payable Capital stock, no par Retained earnings Total liabilities and equity Accounts receivable at June 30 May sales June sales Total Retained earnings at June 30 Balance, March 31 Add net income Total Less dividends declared Balance, June 30Explanation / Answer
Solution:
1) Sales Budget for the three month period ending June 30
Sales Budget
For the three month period ending June 30
April
May
June
Total
Budgeted Sales Unit (in pairs)
65,000
100,000
50,000
215,000
Sale Price (per pair)
$10
$10
$10
Budgeted Sales in dollars
$650,000
$1,000,000
$500,000
$2,150,000
2) A schedule of expected cash collections from sales for the three month period ending June 30
Schedule of Expected Cash Collections from Sales
For the three month period ending June 30
Particulars
April
May
June
Total
Budgeted Sales in dollars
$650,000
$1,000,000
$500,000
Collection Schedule
20% sales are collected in the month of sale
$130,000
$200,000
$100,000
70% sales are collected in the following month of sale
$280,000
$455,000
$700,000
10% is collected in the second month following sale
$26,000
$40,000
$65,000
Total Expected Cash Collection from Sales
$436,000
$695,000
$865,000
$1,996,000
Working Note for Schedule of Expected Cash Collections from Sales
For the three month period ending June 30
Particulars
Feb
March
April
May
June
July
August
Budgeted Sales in pair
26,000
40,000
65,000
100,000
50,000
30,000
28,000
Sale Price per Pair
$10
$10
$10
$10
$10
$10
$10
Budgeted Sales in dollars
$260,000
$400,000
$650,000
$1,000,000
$500,000
$300,000
$280,000
Collection Schedule
20% sales are collected in the month of sale
52000
80000
$130,000
$200,000
$100,000
$60,000
$56,000
70% sales are collected in the following month of sale
182000
$280,000
$455,000
$700,000
$350,000
$210,000
10% is collected in the second month following sale
$26,000
$40,000
$65,000
$100,000
$50,000
Total Expected Cash Collection from Sales
$52,000
$262,000.00
$436,000.00
$695,000.00
$865,000.00
$510,000.00
$316,000.00
3) A merchandise purchases budget in units and in dollars. Show the budget by month and in total
Merchandise Purchases Budget in units and in dollars
For the three month period ending June 30
Particulars
April
May
June
Total
Budgeted Sales Unit (in pairs)
65,000
100,000
50,000
215,000
Add: Ending Inventory (40% of the earrings sold in the following month)
40,000
20,000
12,000
72,000
Less: Beginning Inventory (Ending Inventory of last month)
(26,000)
(40,000)
(20,000)
(86,000)
Merchandise Purchase Budget in Units
79,000
80,000
42,000
201,000
Purchase Price Per pair of earrings
$4
$4
$4
Merchandise Purchase Budget in dollars
$316,000
$320,000
$168,000
$804,000
Working for Merchandise Purchases Budget in units and in dollars
For the three month period ending June 30
Feb
March
April
May
June
July
August
Budgeted Sales Unit (in pairs)
26,000
40,000
65,000
100,000
50,000
30,000
28,000
Add: Ending Inventory (40% of the earrings sold in the following month)
16000
26000
40000
20000
12000
11200
#REF!
Less: Beginning Inventory (Ending Inventory of last month)
(16,000)
(26,000)
(40,000)
(20,000)
(12,000)
(11,200)
Merchandise Purchase Budget in Units
50,000
79,000
80,000
42,000
29,200
#REF!
Purchase Price Per pair of earrings
$4
$4
$4
$4
$4
$4
Merchandise Purchase Budget in dollars
$200,000
$316,000
$320,000
$168,000
$116,800
#REF!
4) A schedule of expected cash disbursements for merchandise purchases, by month and in total.
Schedule of Cash Disbursements for Merchandise Purchases
For the three month period ending June 30
Particulars
April
May
June
Total
Merchandise Purchase Budget in dollars
$316,000
$320,000
$168,000
$804,000
Schedule of Payment
50% of purchases are paid in the month of purchase
$158,000
$160,000
$84,000
50% of purchases are paid in the following month of purchase
$100,000
$158,000
$160,000
Total Cash Disbursements for Merchandise Purchases
$258,000
$318,000
$244,000
$820,000
Working for Schedule of Cash Disbursements for Merchandise Purchases
For the three month period ending June 30
March
April
May
June
July
August
Merchandise Purchase Budget in dollars
$200,000
$316,000
$320,000
$168,000
$116,800
#REF!
Schedule of Payment
50% of purchases are paid in the month of purchase
$100,000
$158,000
$160,000
$84,000
$58,400
50% of purchases are paid in the following month of purchase
$100,000
$158,000
$160,000
$84,000
Total Cash Disbursements for Merchandise Purchases
$258,000
$318,000
$244,000
$142,400
Please ask separate question for the rest requirements...
Sales Budget
For the three month period ending June 30
April
May
June
Total
Budgeted Sales Unit (in pairs)
65,000
100,000
50,000
215,000
Sale Price (per pair)
$10
$10
$10
Budgeted Sales in dollars
$650,000
$1,000,000
$500,000
$2,150,000