minor and semi-minor changes in the problem): IMPORTANT: Sales commissions are paid in the same month as the sale. These equipment purchases will be financed primarily by using the firm?s cash and by selling its marketable securities These marketable securities will be sold at cost (change from handout). Fedders believes that OE needs to keep a minimum cash balance of $250,000 (change from handout) at the end of the quarter.

ACC 208 - Fall 2013 Assignment - Master Budget - 30 Points General Information: This assignment requires you to integrate your knowledge of Financial Accounting (ACC 207), budgeting (from ACC 208) and Excel. It will take you several hours to complete. I am not making this up. Do not start this assignment at the last minute. This is a team assignment. Each team of no more than three should submit this assignment to me via a thumb drive and in hard copy to me at the beginning of class on November 12, 2013. Only one grade per team will be awarded. No late submissions will be accepted under any circumstances. Any evidence of copying will be dealt with severely. At the very least, (a) each team member will receive a zero for this assignment and (b) an incident report of academic misconduct will be placed in each student's file. Required format: 1. Hard Copy (10 points) a. First page must be organized as follows: i. Accounting 208 Budget Problem ii. Fall 2013 iii. Your class section iv. Members of your team, listed in alphabetical order v. In submitting this project, we affirm that we abided by the UD Honor Code. (Each team member must sign this affirmation). b. Second (and additional)page(s): i. Each budget must be printed on a separate page. ii. Use 12 point, Times-Roman font iii. Title of budget should appear at the top of each page iv. 1\" margins v. Print Gridlines for ease of grading. c. All pages must be stapled. d. No late submissions will be accepted. Version 1 Page 1 of 5 2. Electronic submission (20 points) a. The purpose of this part of the assignment is to show me that you know how to use Excel. Thus, you are expected to use formulas (formulae)/links/functions in completing this assignment. Twenty points will be deducted if you simply enter the numbers in the correct space, even if your solution is correct! b. Format: i. Your thumb drive must indicate on the outside body of the drive the names of each team member. You can do this by writing this information on duck tape and wrapping it around the thumb drive or by marking the drive with a marking pen or with double-sided tape. I cannot give you a grade if I don't know who you are! ii. Excel (any version) iii. All of your names must appear at the top right of each page. iv. Each page (except the cover page) must be numbered (lower right). v. Each budget must appear on a different sheet. The title of each budget should appear as the name of the sheet on which it appears. vi. Use 12 point, Time-Roman font vii. Use 1\" margins Prepare and present all reports in a neat and professional manner. Version 1 Page 2 of 5 PROBLEM: \"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 EZ Loan National Bank.\" This statement by James Fedders, president of Ohio Electronics (OE), concluded a meeting he had called with the firm's top management. OE is a small, rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. David Smith, OE's General Manager of Marketing, has recently completed a sales forecast. He believes the company's sales during the first quarter of 2014 will increase by 10 percent each month over the previous month's sales. Then Smith expects sales to remain constant for several months. OE's balance sheet as of December 31, 2013 is as follows: Cash Accounts receivable Marketable securities Inventory Buildings and equipment (net of accumulated depreciation) Total assets $ Accounts payable Bond interest payable Property taxes payable Bonds payable (10%; due in 2018) Common stock Retained earnings Total liabilities and stockholders' equity $ Version 1 35,000 270,000 15,000 154,000 626,000 $ 1,100,000 176,400 12,500 3,600 300,000 500,000 107,500 $ 1,100,000 Page 3 of 5 Wanda Fox, the assistant controller, is now preparing a monthly budget for the first quarter of 2013. She has accumulated the following information: 1. Projected sales for December of 2013 are $400,000. a. Credit sales typically are 40 percent of total sales. b. OE's credit experience indicates that 25 percent of the credit sales are collected during the month of sale, and the remainder is collected during the following month. 2. OE's cost of goods sold generally runs at 60 percent of sales. a. Inventory is purchased on account, and 55 percent of each month's purchases are paid during the month of purchase. b. 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. 3. Fox has estimated that OE's other monthly expenses will be as follows: Sales salaries Advertising and promotion Administrative salaries Depreciation Interest on bonds Property taxes Sales commissions $21,000 16,000 21,000 25,000 2,500 900 2% of sales 4. Mr. Fedders has indicated that the firm would invest $125,000 in an automated inventory- handling system to control the movement of inventory in the firm's warehouse just after the New Year begins. a. These equipment purchases will be financed primarily by using the firm's cash and by selling its marketable securities. i. Fedders believes that OE needs to keep a minimum cash balance of $25,000 at the end of the quarter. b. The equipment purchases will also be financed by borrowing $100,000 from a local bank on January 1. i. The minimum period for such a loan is three months. ii. Short-term interest rates will be 5 percent per year at the time of the equipment is purchased. iii. OE intends to pay off the loan by the end of the first quarter if possible, along with any interest that may be due on the loan. OE's board of directors intends 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 OE's current bonds is paid semiannually on January 31 and July 31. Property taxes are paid semiannually on February 28 and August 31. Version 1 Page 4 of 5 REQUIRED: Prepare OE's master budget for the first quarter of 2014 by completing the following schedules and statements. 1. Sales budget 2. Cash receipts budget 3. Purchase budget 4. Cash disbursements budget for purchase of inventory 5. Cash budget 6. Budgeted income statement for the first quarter of 2014. (Ignore income taxes.) 7. Budgeted balance sheet as of March 31, 2014. Version 1 Page 5 of 5