Problem 9-24 Completing a Master Budget [LO2]

The Following data relate to the operations of shilow company, a wholesale distributor of consumer goods:

Current assets as of March 31

Cash: $ 8,000

Accounts Receivable: 20,000

Inventory: 36,000

Buildings and equipment, net: 120,000

Account Payable: 21,750

Common Shares: 12,250

a.) The gross margin is 25% of sales

b.) Actual and Budgeted sales data are as follows:

March (actual) $ 50,000

April 60,000

May 72,000

June 90,000

July 48,000

c.) 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 the result of March credit sales.

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

e.) One-half of the month's inventory purchases is paid in the month of purchase; the other one-half is paid in the following month. The accounts payable at March 31 are the result of March purchase of inventory.

f.) Monthly expenses are as follows: commissions, 12% of sales; rent $2,500; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month and includes depreciation on new assets.

g.) Equipment will be acquired for cash: $1,500 in April.

h.) Management would like to maintain a minimum cash balance of $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow as needed at the beginning of each month, up to the 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, repay the loan plus accounted interest at the end of the quarter.

Required:

Using the preceding data, complete the following:

1.) Schedule of expected cash collections:

April May June Quarter

Cash Sales $36,000 ______ ______ _________

Credit Sales 20,000 ______ ______ ________

Total Collection $56,000 ______ ______ ________

2.) Merchandise purchases budget:

April May June Quarter

Budgeted cost of goods sold $45,000*

Add desired ending inventory 43,200 ______ _______ ________

Total needs 88,200

Less beginning inventory 36,000 ______ _______ ________

Required purchases $52,000 ______ _______ ________

*$60,000 sales x 75%

$54,000 x 80%

Schedule of expected cash disbursements- Merchandise purchases:

April May June Quarter

March purchases $21,750 $21,750

April purchases 26,100 26,100 52,200

May purchases

June purchases __________________________________________________________________

Total disbursement $47,850

3.) Complete the following cash budget:

April May June Quarter

Cash balance , beginning $8,000

Add cash collections 56,000 _____ _____ _________

Total cash available 64,000 _____ _____ _________

Less cash disbursements:

For inventory 47,850

For expenses 13,300

For equipment 1,500 _____ _____ _________

Total cash disbursements 62,650 _____ _____ _________

Excess (deficiency) of cash $ 1,350

Financing, etc.

4.) Prepare an absorption costing income statement, similar to the one shown in Schedule 9, for the quarter ended June 30.

5.) Prepare a balance sheet as of June 30.