Question

You have just been hired to work for a company that sells shoes. Your first task is to prepare a master budget for the next three months, starting April 1.

The shoes are sold to retaliers for $16 each. Recent and forecasted sales in units are as follows:

Janurary (actual) 22,400

February (actual) 28,400

March (actual) 42,400

April (Budget) 67,400

May (budget) 102,400

June (budget) 52,400

July (budget) 32,400

August (budget) 30,400

September (budget) 27,400

The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed to equal 40% of the next month's sales in units. The shoes cost the company $5.20 each.

Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected by month-end. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

The company's monthly selling and administrative expenses are given below: Variable -Sales commisions 4% of sales Fixed -advertising $320,000 -rent $30,000 -salaries $130,000 -utilities $13,000 -insurances $4,200 -depreciations $26,000 Insurance is paid on an annual basis, in November of every year. ***THINK PRE-PAID*** All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $22,000 cash and equipment will be purchased in June for $52,000 cash. The company declares dividends of $24,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Assets: -cash $86,000 -Accounts receivable ($45,440 Feburary sales; $542,720 March sales) 588,160 -inventory 140,192 -prepaid insurance 27,000 property and equipment (net) 1,070,000 -Total assets $1,911,352 Liabilities & Stockholders equity: -accounts payable $112,000 -dividends payable 24,000 -common stock 1.040,000 -retained earnings 735,352 Total liabilities and stockholders equity $1,911,352 The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $62,000 in cash. Required: PUT INTO EXCEL FORUMALS Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: 1. A sales budget by month and in total. 2. A schedule of expected cash collections from sales, by month and in total. 3. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. 4. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 5. A cash budget. Show the budget by month and in total. 6. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 7. A budgeted balance sheet as of June 30.

Answer 1

1	Sales budget	April	May	June	Quarter
	Sales	67400	102400	52400	222200
	Per unit price	16	16	16	16
	Credit sales	1078400	1638400	838400	3555200
2	Budgeted Cash receipt	April	May	June	Quarter
	February sales	45440			45440
	March sales	474880	67840		542720
	April Sales	215680	754880	107840	1078400
	May sales		327680	1146880	1474560
	June sales			167680	167680
	Total collection	736000	1150400	1422400	3308800
3	Purchase budget	April	May	June	Quarter
	Net month Sales	102400	52400	32400
	equal to 40%	40%	40%	40%
	Ending inventory	40960	20960	12960	12960
Add	Sales	67400	102400	52400	222200
Less	Beginning inventory	26960	40960	20960	26960
	Required purchase	81400	82400	44400	208200
	Price per unit	5.2	5.2	5.2	5.2
	Purchase in dollars	423280	428480	230880	1082640
4	Particulars	April	May	June	Quarter
	Accounts payable	112000			112000
	Payment for April	211640	211640		423280
	Payment for May		214240	214240	428480
	Payment for June			115440	115440
	Total payments	323640	425880	329680	1079200