Question
In: Accounting
“We really need to get this new material-handling equipment in operation just after the new year...
“We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firm’s top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm’s main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal’s General Manager of Marketing, has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then Wilcox expects sales to remain constant for several months. Intercoastal’s projected balance sheet as of December 31, 20x0, is as follows:
| Cash | $ | 40,000 | |
| Accounts receivable | 315,000 | ||
| Marketable securities | 25,000 | ||
| Inventory | 192,500 | ||
| Buildings and equipment (net of accumulated depreciation) | 549,000 | ||
| Total assets | $ | 1,121,500 | |
| Accounts payable | $ | 220,500 | |
| Bond interest payable | 6,250 | ||
| Property taxes payable | 6,000 | ||
| Bonds payable (10%; due in 20x6) | 150,000 | ||
| Common stock | 500,000 | ||
| Retained earnings | 238,750 | ||
| Total liabilities and stockholders’ equity | $ | 1,121,500 | |
Jack Hanson, the assistant controller, is now preparing a monthly
budget for the first quarter of 20x1. In the process, the following
information has been accumulated:
- Projected sales for December of 20x0 are $500,000. Credit sales typically are 70 percent of total sales. Intercoastal’s credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month.
- Intercoastal’s cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month’s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month’s projected cost of goods sold.
- Hanson has estimated that Intercoastal’s other monthly expenses
will be as follows:
Sales salaries $ 35,000 Advertising and promotion 16,000 Administrative salaries 35,000 Depreciation 25,000 Interest on bonds 1,250 Property taxes 1,500
In addition, sales commissions run at the rate of 2 percent of sales. - Intercoastal’s president, Davies-Lowry, has indicated that the firm should invest $105,000 in an automated inventory-handling system to control the movement of inventory in the firm’s warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm’s cash and marketable securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of $40,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible.
- Intercoastal’s board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter.
- The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal’s bonds is paid semiannually on January 31 and July 31 for the preceding six-month period.
- Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period.
Required:
Prepare Intercoastal Electronics Company’s master budget for the
first quarter of 20x1 by completing the following schedules and
statements.
1. Sales budget:
| 20X0 | 20X1 | 20x1 | 20X1 | 20x1 | ||
| DEC | JAN | FEB | MAR | FIRST QUARTER | ||
| TOTAL SALES | ||||||
| CASH SALES | ||||||
| SALES ON ACCOUNT | ||||||
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Expert Solution
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| Intercostal | ||||||
| Sales Budget | December | January | February | March | Jan-Mar | Note |
| Total sale | 500,000.00 | 550,000.00 | 605,000.00 | 665,500.00 | 1,820,500.00 | A |
| Cash sale at 30% | 150,000.00 | 165,000.00 | 181,500.00 | 199,650.00 | 546,150.00 | B=A*30% |
| Credit sale at 70% | 350,000.00 | 385,000.00 | 423,500.00 | 465,850.00 | 1,274,350.00 | C=A*70% |
| Collection Schedule | January | February | March | Jan-Mar | Note |
| Cash sale at 30% | 165,000.00 | 181,500.00 | 199,650.00 | 546,150.00 | See B |
| Collection of 10% of credit sales | 38,500.00 | 42,350.00 | 46,585.00 | 127,435.00 | D=C*10% |
| Collection of 90% of credit sales | 346,500.00 | 381,150.00 | 727,650.00 | E=90% of C of previous month | |
| Collection of December Accounts Receivable | 315,000.00 | 315,000.00 | |||
| Total Scheduled Collections | 518,500.00 | 570,350.00 | 627,385.00 | 1,716,235.00 | F |
| Material Payment Budget | December | January | February | March | Jan-Mar | Note |
| Total sales | 500,000.00 | 550,000.00 | 605,000.00 | 665,500.00 | 1,820,500.00 | See A |
| Cost of goods sold @70% | 350,000.00 | 385,000.00 | 423,500.00 | 465,850.00 | 1,274,350.00 | N=A*70% |
| Add: Ending Inventory | 211,750.00 | 232,925.00 | 232,925.00 | 232,925.00 | ||
| Less: Opening Inventory | 192,500.00 | 211,750.00 | 232,925.00 | 192,500.00 | ||
| Purchases | 404,250.00 | 444,675.00 | 465,850.00 | 1,314,775.00 | G | |
| 40% paid in same month | 161,700.00 | 177,870.00 | 186,340.00 | 525,910.00 | H=G*40% | |
| 60% paid in next month | 242,550.00 | 266,805.00 | 509,355.00 | I= 60% of G of previous month. | ||
| Payment of December Accounts Payable | 220,500.00 | 220,500.00 | ||||
| Material Payment | 382,200.00 | 420,420.00 | 453,145.00 | 1,255,765.00 |
| Cash budget | January | February | March | Jan-Mar | Note |
| Beginning Cash Balance | 40,000.00 | 71,800.00 | 114,630.00 | 40,000.00 | |
| Plus: Collections | 518,500.00 | 570,350.00 | 627,385.00 | 1,716,235.00 | See F |
| Cash Available | 558,500.00 | 642,150.00 | 742,015.00 | 1,756,235.00 | |
| Disbursements | |||||
| Material Payment | 382,200.00 | 420,420.00 | 453,145.00 | 1,255,765.00 | See I |
| Sales Salaries | 35,000.00 | 35,000.00 | 35,000.00 | 105,000.00 | |
| Advertising | 16,000.00 | 16,000.00 | 16,000.00 | 48,000.00 | |
| Administrative Salaries | 35,000.00 | 35,000.00 | 35,000.00 | 105,000.00 | |
| Interest on bonds | 7,500.00 | 7,500.00 | This is $ 1250*6 | ||
| Property Taxes | 9,000.00 | 9,000.00 | This is $ 1500*6 | ||
| Sales Commission | 11,000.00 | 12,100.00 | 13,310.00 | 36,410.00 | J=A*2% |
| Dividend paid | 50,000.00 | 50,000.00 | |||
| Total cash payments | 486,700.00 | 527,520.00 | 602,455.00 | 1,616,675.00 | |
| Ending Cash Balance | 71,800.00 | 114,630.00 | 139,560.00 | 139,560.00 |
| Income Statement | Amount $ | Note |
| Sales Revenues | 1,820,500.00 | See A |
| Net Sales | 1,820,500.00 | |
| Less: Cost of goods sold | 1,274,350.00 | See G |
| Gross Profit | 546,150.00 | |
 ekkarill92 answered 1 year agoRelated Solutions“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment
in operation just after the new year begins. I hope we can finance
it largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
We really need to get this new material-handling equipment in operation just after the new year...We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
“We really need to get this new material-handling equipment in operation just after the new year...“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer
electronic products. The firm’s main product lines are small...
[The following information applies to the questions displayed below.] “We really need to get this new...[The following information applies to the questions
displayed below.]
“We really need to get this new material-handling equipment in
operation just after the new year begins. I hope we can finance it
largely with cash and marketable securities, but if necessary we
can get a short-term loan down at MetroBank.” This statement by
Beth Davies-Lowry, president of Intercoastal Electronics Company,
concluded a meeting she had called with the firm’s top management.
Intercoastal is a small, rapidly growing wholesaler of consumer...
Your company is considering investing in new material handling equipment for your warehouse. The new equipment...Your company is considering investing in new material handling
equipment for your warehouse. The new equipment will allow for
savings in fuel and maintenance costs each year over 6 years. The
first year savings is expected to be $3000 and that savings will
decrease by $400 each subsequent year (i.e. $2600 savings year 2,
$2200 savings year 3, and so on). The new equipment would cost
$20,000 today, and at the end of 6 years it would have zero value....
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