Master Budget with Supporting Schedules You have just been hired as a new manage
ID: 2476450 • Letter: M
Question
Master Budget with Supporting Schedules
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 May (budget) .....100,000 September (budget)......$25,000
Febuary (actual).....$26,000 June (budget) .....$50,000
March (actual).....$40,000 July (Budget)......$30,000
April (budget).....$65,000 August (budget).....$28,000
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
Utilities.....$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.......................................$74,000
Accts Recievable ($26,000 Feb. sales; $320,000 Mar. sales)............$346,000
Inventory.......$104,000
Prepaind Insurance.......$21,000
Property and Equipment (net).....$950,000
Total Assets......................................$1,495,000
Liabilities and Stockholders' Equity
Accts Payable .....$100,000
Dividends Payable......$15,000
Capital Stock......$800,000
Retained Earnings......$580,000
Total liabilities and stockholders' equity ........$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:
A sales budget, by month and in total.
What is a merchandise purchases budget in units and in dollars? It should be showed the budget by month and in total
Explanation / Answer
Cash Budget April May J June Total Beginning Cash balance 74000 $50,000 $50,000 74000 Ans 1 Budgeted Cash Receipt 436000 695000 865000 1996000 Total cash available 510000 745000 915000 2070000 Less: Total cash payment 705000 Cash payment of purchases 258000 318000 244000 820000 Sales Commissions @ 4% 26000 40000 20000 86000 Advertising & Promotion 200000 200000 200000 600000 Salaries 106000 106000 106000 318000 Utilities 7000 7000 7000 21000 Rent 18000 18000 18000 54000 Cash Expenses 615000 689000 595000 1899000 Divedend Paid 15000 15000 Eqyuipment purchased 16000 40000 56000 Total cash payment 630000 705000 635000 1970000 Cash Balance before minimum cash balance ($120,000) $40,000 $280,000 100000 Minimum Cash balance 50000 50000 50000 50000 Cash balnce Available ($170,000) ($10,000) $230,000 $50,000 Borrowed/Repaid 170000 10000 -180000 $0 Interest Repaid 3% on $46000 -5300 ($5,300) Cash Balance $0 $0 $44,700 $50,000 Closing Cash Balance (Minimum Balance+cash balance) $50,000 $50,000 $94,700 $94,700 See the cash disbursement and cash payment schedule` Income Statement as on 3o June 2016 April May June Total Sales 650000 1000000 500000 2150000 Less: variable Cost Cost of Good Sold 260000 400000 200000 860000 Sales Commissions @ 4% 26000 40000 20000 86000 Contribution 364000 560000 280000 1204000 Fixed Expenses Advertising & Promotion 200000 200000 200000 600000 Salaries 106000 106000 106000 318000 Utilities 7000 7000 7000 21000 Rent 18000 18000 18000 54000 Insurance 3000 3000 3000 9000 Depreciation 14000 14000 14000 42000 Interest On Short Term Loan 1700 1800 1800 5300 Net Operating Income 14300 210200 -69800 154700 Statement of Retained earnings Opening balance 580000 Add: Net Income for the year 154700 Closing balance 734700 BalANCE Sheet as on 30 June Assets Cash 94700 Accounts Receivable 500000 Inventory 48000 Prepaid Insurance(21000-3000*3) 12000 Plant & Equipment 1006000 Less: Accumulated Depreciation -42000 1618700 Liabilities Accounts payable 84000 Common Stock 800000 Retained earnings 734700 TotalLiabilities & Equity 1618700 Ans 1 Budgeted Cash Receipt working April May June Total February March July Sales in units A 65000 100000 50000.0 215000 26000 40000 30000 Sale Price 10 10 10 10 10 10 10 Sales in value 650000 1000000 500000 2150000 260000 400000 300000 20% in same month 130000 200000 100000 430000 April 26000 280000 70% in next month 280000 455000 700000 1435000 May 40000 10% in second month 26000 40000 65000 131000 Feb sales March sales Total A 436000 695000 865000 1996000 Accounts Receivable May 1000000*.1+June 500000*.8= 500000 Note 2 Cash Disbursement April May June Total July Finished Goods Sales 65000 100000 50000 215000 30000 Closing Inventory 40% of next month sales S*.4 40000 20000 12000 12000 Note Beginning Inventory of April is =104000/4=26000 Total Finised Goods 105000 120000 62000 227000 Less: Beginning Inventory 26000 40000 20000 26000 Units to be produced 79000 80000 42000 201000 Purchase Price 4 4 4 4 Total Purchase price A 316000 320000 168000 804000 COGS= Units sold*4 260000 400000 200000 860000 Cash Disbursement 50% same month A 158000 160000 84000 402000 50% in next month 100000 158000 160000 418000 Total B 258000 318000 244000 820000 Accounts payable as on 30 June 84000