Question

Synder’s has been in business since January of the current year. The company buys fresh pasta and resells it to large supermarket chains in five states. The following information pertains to Synder’s first four months of operations:


Synder’s expects to open several new sales territories in May. In anticipation of increased volume, management forecasts May sales at $100,000. To meet this demand, purchases in May are budgeted at $60,000. The company maintains a gross profit margin of approximately 40 percent.
All of Synder’s sales are on account. Due to strict credit policies, the company has no bad debt expense. The following collection performance is anticipated for the remainder of the year:
Percent collected in month of sale . . . . . . . . . . . . . . ... 40%
Percent collected in month following sale . . . . . . . . . . . . . 50
Percent collected in the second month following sale . . . 10
Synder’s normally pays for 75 percent of its purchases in the month that the purchases are made. The remaining amount is paid in the following month. The company’s fixed selling and administrative expenses average $10,000 per month. Of this amount, $3,000 is depreciation expense. Variable selling and administrative expenses are budgeted at 5 percent of sales. The company pays all of its selling and administrative expenses in the month that they are incurred.
Synder’s debt service is $4,000 per month. Of this amount, approximately $3,000 represents interest expense, and $1,000 is payment on the principal. The company’s tax rate is approximately 25 percent. Quarterly tax payments are made at the end of March, June, September, and December.

Instructions
a. Prepare Synder’s budgeted income statement for May.
b. Prepare Synder’s cash budget for May. Assume that the company’s cash balance on May 1 is $30,000.
c. What are the primary benefits that Synder’s will gain from preparing and using abudget?


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  • CreatedApril 17, 2014
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