Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-
ID: 2553491 • Letter: P
Question
Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
8,700
24,800
46,800
116,400
28,050
150,000
18,650
The gross margin is 25% of sales.
Actual and budgeted sales data:
Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
Monthly expenses are as follows: commissions, 12% of sales; rent, $3,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $873 per month (includes depreciation on new assets).
Equipment costing $2,700 will be purchased for cash in April.
Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Required:
Using the preceding data:
1. Complete the following schedule:
2. Complete the following:
3. Complete the following cash budget:
4. Prepare an absorption costing income statement for the quarter ended June 30.
Current assets as of March 31: Cash $8,700
Accounts receivable $24,800
Inventory $46,800
Building and equipment, net $116,400
Accounts payable $28,050
Common stock $150,000
Retained earnings $18,650
Explanation / Answer
Sales Budget April May June Total Budegeted Sales 78000 83000 108000 269000 Schedule of expected cash collections: April May June Total Cash Sales 46800 49800 64800 161400 Credit Sales: March sales 24800 24800 April Sales 31200 31200 May sales 33200 33200 Total Collections 71600 81000 98000 250600 Receivables 43200 Merchandise purchase budget April May June Total Cost of goods sold (75%) of sales 58500 62250 81000 201750 Add: Ending inventory 49800 64800 35400 35400 (80% of next month's cost) Total cost of goods neded 108300 127050 116400 237150 Less: Beginning inventory 46800 49800 64800 46800 Budgeted purchases 61500 77250 51600 190350 Schedule of cash disbursements for purchases April May June Total Budgeted purchases 61500 77250 51600 190350 March purchases 28050 28050 April Purchases 30750 30750 61500 May Purchases 38625 38625 77250 June Purchases 25800 25800 Cash payment for purchases 58800 69375 64425 192600 Payables 25800 Monthly expenses budget April May June Total Commission (12% of sales) 9360 9960 12960 32280 Other Expenses (6% of sales) 4680 4980 6480 16140 Rent 3500 3500 3500 10500 Depreciation 873 873 873 2619 Total Expenses 18413 19313 23813 61539 Cash payments for expenses 17540 18440 22940 58920 Cash Budget for the qurter ending June30 April May June Total Beginning cash balance 8700 4260 4445 8700 Add: Collections 71600 81000 98000 250600 Total cash available 80300 85260 102445 259300 Cash disbursements: For purchases 58800 69375 64425 192600 For expenses 17540 18440 22940 58920 For equipment purchases 2700 2700 Total cash disbursements 79040 87815 87365 254220 Ending Cash Balance 1260 -2555 15080 5080 Minimum Cash balance 4000 4000 4000 4000 Excess / (Shortage) -2740 -6555 11080 1080 Financing: Borrowing / (Repayments) 3000 7000 -10000 0 Interest -230 -230 Total Financing 3000 7000 -10230 -230 Ending Cash Balance 4260 4445 4850 4850 SHILOW COMPANY Income Statement for the quarter ending June 30 Sales 269000 Cost of goods sold 201750 Gross profit 67250 Expenses: Commission 32280 Other expenses 16140 Rent 10500 Depreciation 2619 Total selling and edministrative expenses 61539 Net operating income 5711 Interest expense 230 Net income 5481 SHILOW COMPANY Balance Sheet as at June30 Cash 4850 Accounts Receivable 43200 Inventory 35400 Buildings and equipment, net Beginning balance 116400 Purchases 2700 Depreciation -2619 116481 Total Assets 199931 Liabilities and Stockholders' equity Accounts Payable 25800 Common Stock 150000 Retained Earnings Beginning balance 18650 Net income 5481 Ending balance 24131 Total Liabilities and Stockholders equity 199931