Question

Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Current assets as of March 31:
Cash	$	8,700
Accounts receivable	$	24,800
Inventory	$	46,800
Building and equipment, net	$	116,400
Accounts payable	$	28,050
Common stock	$	150,000
Retained earnings	$	18,650

The gross margin is 25% of sales.

Actual and budgeted sales data:

March (actual)	$	62,000
April	$	78,000
May	$	83,000
June	$	108,000
July	$	59,000

Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

Monthly expenses are as follows: commissions, 12% of sales; rent, $3,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $873 per month (includes depreciation on new assets).

Equipment costing $2,700 will be purchased for cash in April.

Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

1. Complete the following schedule:

2. Complete the following:

3. Complete the following cash budget:

4. Prepare an absorption costing income statement for the quarter ended June 30.

Answer 1

Sales Budget
	April	May	June	Total
Budegeted Sales	78000	83000	108000	269000
Schedule of expected cash collections:
	April	May	June	Total
Cash Sales	46800	49800	64800	161400
Credit Sales:
March sales	24800			24800
April Sales		31200		31200
May sales			33200	33200
Total Collections	71600	81000	98000	250600
Receivables				43200
Merchandise purchase budget
	April	May	June	Total
Cost of goods sold (75%) of sales	58500	62250	81000	201750
Add: Ending inventory	49800	64800	35400	35400
(80% of next month's cost)
Total cost of goods neded	108300	127050	116400	237150
Less: Beginning inventory	46800	49800	64800	46800
Budgeted purchases	61500	77250	51600	190350
Schedule of cash disbursements for purchases
	April	May	June	Total
Budgeted purchases	61500	77250	51600	190350
March purchases	28050			28050
April Purchases	30750	30750		61500
May Purchases		38625	38625	77250
June Purchases			25800	25800
Cash payment for purchases	58800	69375	64425	192600
Payables				25800
Monthly expenses budget
	April	May	June	Total
Commission (12% of sales)	9360	9960	12960	32280
Other Expenses (6% of sales)	4680	4980	6480	16140
Rent	3500	3500	3500	10500
Depreciation	873	873	873	2619
Total Expenses	18413	19313	23813	61539
Cash payments for expenses	17540	18440	22940	58920
Cash Budget
for the qurter ending June30
	April	May	June	Total
Beginning cash balance	8700	4260	4445	8700
Add: Collections	71600	81000	98000	250600
Total cash available	80300	85260	102445	259300
Cash disbursements:
For purchases	58800	69375	64425	192600
For expenses	17540	18440	22940	58920
For equipment purchases	2700			2700
Total cash disbursements	79040	87815	87365	254220
Ending Cash Balance	1260	-2555	15080	5080
Minimum Cash balance	4000	4000	4000	4000
Excess / (Shortage)	-2740	-6555	11080	1080
Financing:
Borrowing / (Repayments)	3000	7000	-10000	0
Interest			-230	-230
Total Financing	3000	7000	-10230	-230
Ending Cash Balance	4260	4445	4850	4850
SHILOW COMPANY
Income Statement
for the quarter ending June 30
Sales	269000
Cost of goods sold	201750
Gross profit	67250
Expenses:
Commission	32280
Other expenses	16140
Rent	10500
Depreciation	2619
Total selling and edministrative expenses	61539
Net operating income	5711
Interest expense	230
Net income	5481
SHILOW COMPANY
Balance Sheet
as at June30
Cash		4850
Accounts Receivable		43200
Inventory		35400
Buildings and equipment, net
Beginning balance	116400
Purchases	2700
Depreciation	-2619	116481
Total Assets		199931
Liabilities and Stockholders' equity
Accounts Payable		25800
Common Stock		150000
Retained Earnings
Beginning balance	18650
Net income	5481
Ending balance		24131
Total Liabilities and Stockholders equity		199931