Question

At the end of 2018, the management of XX Corp., a merchandising company, prepared the attached balance sheet. To prepare a master budget for January, February, and March of 2019, management gathers the following information.

1. XX Corp.'s single product is purchased for $33 per unit and resold for $60 per unit. The inventory level of on December 31, 2018 is 2,000 units. Management's desired level of ending inventory for 2019, is is 20% of the next month's expected sales (in units). Expected sales are: January, 6,000 units; February, 9,000 units; March, 12,000 units; and April, 10,000 units. check figure: Total Budgeted Sales Revenue for Quarter = $1,620,000; total budgeted purchases for Quarter = $891,000

2. Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale. For the $500,000 accounts receivable balance at December 31, 2018, $255,000 is collected in January 2019 and the remaining $245,000 is collected in February 2019.
3. All merchandise purchases are made on account. Merchandise purchases are paid for as follows: 40% in the first month after the month of purchase and 60% in the second month after the month of purchase. For the $347,000 accounts payable balance at December 31, 2018, $138,000 is paid in January 2019 and the remaining $208,200 is paid in February 2019.
4. Sales commissions equal to 20% of sales revenue are paid each month. Sales salaries (excluding commissions) are $960,000 per year.
5. General and administrative salaries are $480,000 per year. Maintenance expense equals $3,000 per month and is paid in cash. Depreciation expense is $67,500 for the year.

6. XX Corp. has a working arrangement with its bank to obtain additional loans as needed. The borrowing can only be done in increments of $1,000. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. Eso has agreed to maintain a minimum ending cash balance of $45,000 in each month. The tax payable on the balance sheet is due March 13, 2019.

Required budgets you must complete:

1. Monthly sales budgets (showing both budgeted unit sales and dollar sales).

XX Corp.
Balance Sheet
December 31, 2018
Assets
Cash	$                                     45,000
A/R	500,000
Inventory	170,000
Total Current Assets		715,000
Equipment	540,000
less: Accum Depr	67,500
Equipment, net		472,500
Total Assets		$                                          1,187,500
Liabilities & Equity
A/P	347,000
Bank loan payable	20,000
Taxes payable	102,000
Total Liabilities		469,000
Common Stock	472,500
Retained Earnings	246,000
Total Stockholder's equity		718,500
Total Liabilities and Equity		$                                          1,187,500

Answer 1

Preparing Sales and Collection Budget For 3 month and in total for quarter

XX Corp.
Sales and collection Budget
Particulars	January	February	March	Quarter		April
Budgeted unit sales	6000	9000	12000	27000		10000
Selling Price per unit	$60	$60	$60	$60		$60
Total sales for the month	$360,000	$540,000	$720,000	$1,620,000		$600,000
Total Sales Structure
Cash Sales (30% of Total Sales)	$108,000	$162,000	$216,000	$486,000		$180,000
Credit Sales (70% of Total Sales)	$252,000	$378,000	$504,000	$1,134,000		$420,000
Total Sales	$360,000	$540,000	$720,000	$1,620,000		$600,000
Credit sales structure
60% in first month after month of sale	$151,200	$226,800	$302,400	$680,400		$252,000
40% in second month after month of sale	$100,800	$151,200	$201,600	$453,600		$168,000
Total Credit Sales	$252,000	$378,000	$504,000	$1,134,000		$420,000
Collection during the month (Cash + credit sales)
Cash Sales During The month	$108,000	$162,000	$216,000	$486,000		$180,000
Collection from previous month Credit sales	-	$151,200	$226,800	$378,000		$302,400
Collection from second previous month Credit sales	-	-	$100,800	$100,800		$151,200
Collection from Debtor (December Outstanding)	$255,000	$245,000	-	$500,000		$0
Collection during the period	$363,000	$558,200	$543,600	$1,464,800		$453,600

.

Preparing Production Budget For 3 month and in total for quarter

XX Corp.
Production Budget
Particulars	January	February	March	Quarter
Budgeted unit sales	6000	9000	12000	27000
Add: - Closing Stock (20% of Next month sales)	1800	2400	2000	2000
Total Units Needed	7800	11400	14000	29000
Less:- Opening Stock	-2000	-1800	-2400	-2000
Required production units	5800	9600	11600	27000

.

Preparing Direct Material (Merchandize) Budget For 3 month and in total for the quarter

XX Corp.
Direct Material Budget (Merchandize)
Particulars	January	February	March	Quarter
Required production in units in finished goods	5800	9600	11600	27000
Add:- Closing Stock of raw material	0	0	0	0
total units of raw material needed	5800	9600	11600	27000
Less:- Opening Stock of raw material	0	0	0	0
units of raw material to be purchased	5800	9600	11600	27000

.

Preparing Purchase Budget and Expected Cash Disbursement for Merchandize by month and in total, for the quarter.

XX Corp.
Purchase Budget and Cash Disbursement Budget
Particulars	January	February	March	Quarter
units of raw material to be purchased	5800	9600	11600	27000
unit cost of raw material	$33	$33	$33	$33
Cost of material to be purchased (@ beginning of the month)	$191,400	$316,800	$382,800	$891,000
Payment structure
Payment due in next month (40%)	$76,560	$126,720	$153,120	$356,400
Payment due in next to next month (60%)	$114,840	$190,080	$229,680	$534,600
Total Cost of material to be purchased	$191,400	$316,800	$382,800	$891,000
Merchandize Payment during the period	January	February	March	Quarter
Payment for purchase made during the previous month	-	$76,560	$126,720	$203,280
Payment for purchase during the month	-	-	$114,840	$114,840
Accounts Payable as on December 31.	$138,000	$208,200	-	$346,200
Total payment for Merchandize during the period	$138,000	$284,760	$241,560	$664,320

.

Preparing Cash Budget For 3 month and in total, for the Quarter

XX Corp.
Cash Budget
Particulars	January	February	March	Quarter
Beginning Cash Balance	$45,000	$75,000	$117,440	$45,000
Add: - Cash Receipts From
Collection From sales (Including Accounts Receivable)	$363,000	$558,200	$543,600	$1,464,800
Total Cash Available	$408,000	$633,200	$661,040	$1,509,800
Less : - Cash Payments For
Merchandise Purchases (including Account payable)	$138,000	$284,760	$241,560	$664,320
Sales Commission (20% of Total Sales)	$72,000	$108,000	$144,000	$324,000
Sales Salary	$80,000	$80,000	$80,000	$240,000
General and Administrative Salaries	$40,000	$40,000	$40,000	$120,000
Maintainance	$3,000	$3,000	$3,000	$9,000
Depreciation	-	-	-	$0
Tax Payment			$1,02,000	$1,02,000
Total Cash Disbursements	$333,000	$515,760	$610,560	$1,459,320
Excess (Deficiency) of cash available over Disbursement	$75,000	$117,440	$50,480	$1,52,480
Required minimum Cash Balance	$45,000	$45,000	$45,000	$45,000
Financing
Add: -Borrowings	0	0	0	$0
Less: -Repayments	0	0	0	$0
Less: -Interest	0	0	0	$0
Total Financing	0	0	0	0
Closing Cash Balance	$75,000	$117,440	$50,480	$50,480