You have just been hired to work for a company that sells sh

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 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

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 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.

Solution

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