You have just been hired as a management trainee by Pierres Fashions, a nationwide distributor of a
Question:
The company has an agreement with the Prime bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total line of credit balance of $80,000. 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 every month, the company would pay the bank all of the accumulated interest on the loan and pay back as much of the loan as possible (in increments of $1,000), while still retaining at least $15,000 in cash balance. Interest on the loan is paid only at the time of repayment of the loan and on the outstanding amount.
REQUIRED: Prepare a master budget for the 12 months ending March 31, 2023. Include the following detailed budgets:
3. A Budgeted Income Statement for the year ending March 31, 2023. [10 Marks]
4. A Budgeted Balance Sheet as of March 31, 2023. [10 Marks]
5. Because sales have increased after the opening of the new store, do you think that the company made a wise decision by opening the store. The owner could have invested the $80,000 interest-free Loan elsewhere earning a 6% interest annually. Explain your answer supported by numbers/calculations. [5 Marks]
Note: Please make sure that you round off all the sales in units and other amounts. Because of this round-off, your Budgeted Balance Sheet may have a difference of around $5 to $20 between Total Assets and Total Liabilities. You may ignore this difference or add to any account to balance.
Marketing Research An Applied Orientation
ISBN: 978-0136085430
6th edition
Authors: Naresh K Malhotra