In: Accounting
Operating Budget
• Review 1: Purchase Budget and Cash Collections
• Capes Corporation is a wholesaler of industrial goods. Data
regarding the store's operations
• follow:
• · Sales are budgeted at $390,000 for November, $360,000 for
December, and $340,000 for January.
• · Collections are expected to be 85% in the month of sale, 10% in
the month following the sale, and 5%
uncollectible.
• · The cost of goods sold is 80% of sales.
• · The company purchases 40% of its merchandise in the month prior
to the month of sale and 60% in the
month of sale. Payment for merchandise is made in the month
following the purchase.
• · The November beginning balance in the accounts receivable
account is $77,000.
• · The November beginning balance in the accounts payable account
is $320,000.
• Required:
• a. Prepare a Schedule of Expected Cash Collections for November
and December.
• b. Prepare a Merchandise Purchases Budget for November and
December
Unit Purchase Budget
A sales budget is given below for one of the products manufactured
by the Key Co.:
January.................. 21,000 units
February................ 36,000 units
March.................... 61,000 units
April...................... 41,000 units
May....................... 31,000 units
June....................... 25,000 units
The inventory of finished goods at the end of each month should
equal 20% of the next month's sales. However, on December 31
the finished goods inventory totaled only 4,000 units.
Each unit of product requires three specialized electrical
switches. Since the production of these specialized switches by
Key's
suppliers is sometimes irregular, the company has a policy of
maintaining an ending inventory at the end of each month equal
to
30% of the next month's production needs. This requirement had been
met on January 1 of the current year.
Required: Prepare a budget showing the quantity of switches to be
purchased each month for January, February, and March and in
total for the quarter.
Simple Rate of Return
• (Ignore income taxes in this problem.)
• Ducey Corporation is contemplating purchasing equipment that
would increase sales revenues by
$79,000 per year and cash operating expenses by $27,000 per year.
The equipment would cost
$150,000 and have a 6 year life with no salvage value. The annual
depreciation would be
$25,000.
• Required: Determine the simple rate of return on the investment
to the nearest tenth of a percent.
Show your work.
Operating Budget:
Requirement a: | ||||
Schedule of Expected Cash Collections: | ||||
November | December | |||
A | Budgeted Sales | $390,000 | $360,000 | |
B | Cash Collections: | |||
Accounts Receivable at the beginning of November | $77,000 | |||
85% in the month of Sale (85% of A) | $331,500 | $306,000 | ||
10% in the month following the sale (10% of Nov A) | $39,000 | |||
$408,500 | $345,000 | |||
Requirement b: | ||||
Merchandise Purchases Budget: | ||||
November | December | January | ||
A | Budgeted Sales | $390,000 | $360,000 | $340,000 |
B | Cost of Goods Sold (80% of A) | $312,000 | $288,000 | $272,000 |
C | Budgeted Purchases | |||
40% in the month prior to month of sale (40% of next month B) | $115,200 | $108,800 | ||
60% in the month of sale (60% of B) | $187,200 | $172,800 | ||
$302,400 | $281,600 |