Question

Developing a Master Budget for a Merchandising Organization

Dils Brother Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2017.

Dils Brother Department Store Balance Sheet March 31, 2017
Assets		Liabilities and Stockholders' Equity
Cash	$ 4,000	Accounts payable	$31,000
Accounts receivable	31,000	Dividends payable	15,000
Inventory	36,000	Rent payable	3,000
Prepaid Insurance	3,000	Stockholders' equity	50,000
Fixtures	25,000
Total assets	$99,000	Total liabilities and equity	$99,000

Actual and forecasted sales for selected months in 2017 are as follows:

Month	Sales Revenue
January	$ 70,000
February	60,000
March	50,000
April	60,000
May	70,000
June	80,000
July	100,000
August	90,000

Monthly operating expenses are as follows:

Wages and salaries	$ 27,000
Depreciation	100
Utilities	1,500
Rent	3,000

Cash dividends of $15,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's cost of sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

(a) Prepare a purchases budget for each month of the second quarter ending June 30, 2017.

Dils Brothers Department Store Monthly Purchase Budget Quarter Ending June 30, 2017
	April	May	June	Total
Budgeted purchases	$Answer	$Answer	$Answer	$Answer

(b) Prepare a cash receipts schedule for each month of the second quarter ending June 30, 2017. Do not include borrowings.

Dils Brothers Department Store Schedule of Monthly Cash Receipts Quarter Ending June 30, 2017
	April	May	June	Total
Total cash receipts	$Answer	$Answer	$Answer	$Answer

(c) Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2017. Do not include repayments of borrowings.

Dils Brothers Department Store Schedule of Monthly Cash Disbursements Quarter Ending June 30, 2017
	April	May	June	Total
Total cash disbursements	$Answer	$Answer	$Answer	$Answer

(d) Prepare a cash budget for each month of the second quarter ending June 30, 2017. Include budgeted borrowings and repayments.

Only use negative signs, if needed, for: excess receipts over disbursements, balance before borrowings and cash balances (beginning and ending).

Dils Brothers Department Store Monthly Cash Budget Quarter Ending June 30, 2017
	April	May	June	Total
Cash balance, beginning	$Answer	$Answer	$Answer	$Answer
Receipts	Answer	Answer	Answer	Answer
Disbursements	Answer	Answer	Answer	Answer
Excess receipts over disb.	Answer	Answer	Answer	Answer
Balance before borrowings	Answer	Answer	Answer	Answer
Borrowings	Answer	Answer	Answer	Answer
Loan repayments	Answer	Answer	Answer	Answer
Cash balance, ending	$Answer	$Answer	$Answer	$Answer

(e) Prepare an income statement for each month of the second quarter ending June 30, 2017.

Only use negative signs to show net losses for income.

Dils Brothers Department Store Budgeted Monthly Income Statements Quarter Ending June 30, 2017
	April	May	June	Total
Sales	$Answer	$Answer	$Answer	$Answer
Cost of sales	Answer	Answer	Answer	Answer
Gross profit	Answer	Answer	Answer	Answer
Operating expenses:
Wages and salaries	Answer	Answer	Answer	Answer
Depreciation	Answer	Answer	Answer	Answer
Utilities	Answer	Answer	Answer	Answer
Rent	Answer	Answer	Answer	Answer
Insurance	Answer	Answer	Answer	Answer
Interest	Answer	Answer	Answer	Answer
Total expenses	Answer	Answer	Answer	Answer
Net income	$Answer	$Answer	$Answer	$Answer

(f) Prepare a budgeted balance sheet as of June 30, 2017.

Dils Brothers Department Store Budgeted Balance Sheet June 30, 2017
Assets		Liabilities and Equity
Cash	$Answer	Merchandise payable	$Answer
Accounts receivable	Answer	Dividend payable	Answer
Inventory	Answer	Rent payable	Answer
Prepaid insurance	Answer	Loans payable	Answer
Fixtures	Answer	Interest payable	Answer
Total assets	$Answer	Stockholders' equity	Answer
		Total liab. & equity	$Answer

Answer 1

Part 1 - Presentation of Purchase Budget

Dils Brother Department Store

Purchase Budget

Quarter Ending June 30, 2017

Particulars	April	May	June	Total
Cost of sales (50% of sales)	$30000 ($60000*50%)	$35000 ($70000*50%)	$40000 ($80000*50%)	$105000
Add : Ending Inventory desired (120% of next month cost of sales)	$42000 ($35000*120%)	$48000 ($40000*120%)	$60000 ($100000*50%*120%)	$150000
Total Inventory required	$72000	$83000	$100000	$255000
Less : Opening Inventory	$36000 ($60000*50%*120%)	$42000 (Closing of April)	$48000 (closing of May)	$126000
Budgeted Purchases	$36000	$41000	$52000	$129000

Part 2 - Presentation of cash receipt schedule

Dils brother department store

Schedule of cash receipts

Quarter ending June 30, 2017

Particulars	April	May	June	Total
50% in current Month	$30000 ($60000*50%) of april month	$35000 ($70000*50%) of may month	$40000 ($80000*50%) of june month	$105000
40% in next Month	$20000 ($50000*40%) of march month	$24000 ($60000*40%) of april month	$28000 ($70000*40%) of may month	$72000
10% in next month thereafter	$6000 ($60000*10%) of february monrh	$5000 ($50000*10%) of March month	$6000 ($60000*10%) of april month	$17000
Total	$56000	$64000	$74000	$194000

Part 3 - Presentation of cash disbursement schedule

Dils brother department store

Schedule of cash disbursements

Quarter ending June 30, 2017

Particulars	April	May	June	Total
Payment of purchases (in next month)	$31000 (Accounts payable of March 31, 2017)	$36000	$41000	$108000
Operating expenses
Wages and salary	$27000	$27000	$27000	$81000
Utilities	$1500	$1500	$1500	$4500
Rent	$3000	$3000	$3000	$9000
Other Outflow
Dividend	$15000			$15000
Total Cash Disbursements	$77500	$67500	$72500	$217500

Part - Presentation of Cash Budget

Dils Brother department Store

Cash Budget

Quarter ending June 30, 2017

Particulars	April	May	June	Total
Beginning Cash balance	$4000	$4500	$4000	$12500
Receipts (Part 2)	$56000	$64000	$74000	$194000
Disbursements (Part 3)	($77500	$67500	$72500	($217500)
Excess Receipts over disbursements	($21500)	($3500)	$1500	($23500)
Cash Balance before Borrowing	($17500)	$1000	$5500	($11000)
Borrowings	$22000	$3000	$0	$25000
Loan Repayments + Interest			($1030) ($1000) + ($1000*12%*3/12)	($1030)
Ending Cash Balance	$4500	$4000	$4470	$12970