Question

In: Accounting

On January 1st, 2018. After its first year of operation, CC’s president, Allen Hale, is now...

On January 1st, 2018. After its first year of operation, CC’s president, Allen Hale, is now trying to prepare the company’s master budget for the first two months (January and February) of 2019. Since you are his good friend and an accounting student, Mr. Hale has asked you to prepare the budget.

Based on the budgets from 2018, Mr. Hale has gathered the following information:

  • Projected Sales for January 2019             $124,300
  • Average Monthly Sales Increase                         3%
  • Average Monthly Salary Expenses           $ 36,400
  • Average Monthly Rent Expenses             $ 5,200
  • Average Monthly Utility Expenses          $   6,400
  • Average Monthly Misc. Expense             $   3,200
  • Supplies Expense-percent of sales                        3%
  • Commission-percent of sales                                6%

Begin your project by carefully reading all instructions given here and reviewing the balance sheets and budget worksheets contained in the Excel workbook.

Fill in the data table in the upper left hand corner of the “Budgets” worksheet (found on the second tab in the Excel workbook) with the values above and other values found in the assumptions given below. Using this information, prepare Chippewa Chocolates’ master budget for the first two months of 2019. All amounts should be rounded to whole dollars as necessary. Apply the following assumptions:

                  

  1. Customers typically pay 45% of total sales in cash and the remaining 55% on account. The company expects to collect 100% of the credit sales in the month following the sale.

  1. The cost of goods sold is 40% of budgeted sales and the company desires to maintain a minimum ending inventory equal to 25% of the next month’s cost of goods sold. All purchases are made on account.

  1. The company pays 80% of inventory purchases in the month of purchase and the remaining 20% in the following month.

  1. Depreciation expense on existing equipment is $4,000 each month. In addition, CC will spend $180,000 on January 1 for additional equipment. The equipment is expected to have a $7,200 salvage value and a four-year (48-month) useful life.

  1. Salaries, utilities, and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred.

  1. The company borrows and repays funds on its credit line in increments of $1,000 on the last day of each month as necessary to maintain its targeted $44,000 cash balance. It pays interest of .3% per month in cash on the last day of the month on cash borrowed in the prior month.

Needs to be formatted on Excel

Solutions

Expert Solution

jan feb
sales(=1.03*sale of prev mnth) 124300 128029
COGS(0.40*sale) 49720 51212
supply expense(0.03*sales) 3729 3841
commission(0.06*sales) 7458 7682
RECEIPT AMOUNT
sales(=1.03*sale of prev mnth) 124300 128029
cash sales(0.45*sales) 55935 57613
credit sales(0.55*sales) 68365 70416
collection of credit sales (in next /following mnth) 68365
COGS 49720 51212
closing inventory(0.25*next mnth cogs) 12803 13187
opening 0 12803
net purchase 62523 51596
payment(80%*net purch same mnth) 50018 41277
BALANCE(20%*net purch on next mnth) 12505
(0.20*62523)
CASH BUDGET
RECEIPT
sales - cash 55935 57613
ADD          - credit sales collection 68365
amount before loan (A) 55935 125978
Payments
purchase 50018 53781 (41277+12505)
ADD salary 36400 36400
ADD utility 6400 6400
ADD commission 7458
ADD Rent 5200 5200
ADD misc exp 3200 3200
ADD suplly expense 3729 3841
ADD equipment 180000
INTEREST   0.3%*LOAN 810 0.3%*270000
Payments (B) 284947 117090
net before loan (A-B)           C -229012 8888
minimum closing cash balance   (D) 40000 40000
loan (D-C) 269012 31112
In terms of 1000 270000 32000

ekkarill92 answered 3 months ago
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