Completing a Master Budget
(LO2, LO4, LO7, L08, LO9, LO10)
CHECK FIGURE
(2a) February purchases: $254,800
(4) February ending cash balance: $30,400
Spektra Company, a home furnishings store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:
a. As of December 31 (the end of the prior quarter), the company's general ledger showed the following account balances:
|
|
|
Debits
|
Credits
|
|
|
Cash.................................................
|
mce_markernbsp; 31,000
|
|
|
|
Accounts Receivable ..............
|
135,000
|
|
|
|
Inventory.........................................
|
161,700
|
|
|
|
Building and Equipment (net).....
|
160,000
|
|
|
|
Accounts Payable..........................
|
|
$178,000
|
|
|
Capital Stock..................................
|
|
65,000
|
|
|
Retained Earnings..........................
|
0
|
244,700
|
|
|
|
$487,700
|
$487,700
|
b. Actual sales for December and budgeted sales for the next four months are as follows:
|
|
December (actual)...
|
$300,000
|
|
|
January......................
|
$330,000
|
|
|
February....................
|
$350,000
|
|
|
March.........................
|
$370,000
|
|
|
April............................
|
$360,000
|
c. Sales are 55% for cash and 45% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.
d. The company's gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)
e. Monthly expenses are budgeted as follows: salaries and wages, $18,000 per month: advertising, $15,000 per month; shipping, 4% of sales; other expense, 8% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $24,000.
Each month's ending inventory should equal 70% of the following month's cost of goods sold.
g. 25% of a month's inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month.
h. During February, the company will purchase land for $22,000 cash. During March, land will be purchased for cash at a cost of $2,000.
i. During January, the company will declare and pay $30,000 in cash dividends.
j. Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total of $40,000. The interest rate on these loans is 1% per month and for simplicity we will assume the interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Required:
Using the data above, complete the following statements and schedules for the first quarter:
1. Schedule of expected cash collections:
|
|
|
January
|
February
|
March
|
Quarter
|
|
|
Cash sales.................................
|
mce_markernbsp; 181,500
|
|
|
|
|
|
Credit sales................................
|
135,000
|
|
|
|
|
|
Total cash collections.............
|
mce_markernbsp; 316,500
|
|
|
|
2. a. Inventory purchases budget:
|
|
|
January
|
|
February
|
|
March
|
|
Quarter
|
|
|
Budgeted cost of goods sold..
|
$231,000
|
*
|
$245,000
|
|
|
|
|
|
|
Add desired ending inventory
|
171,500
|
†
|
|
|
|
|
|
|
|
Total needs...............................
|
402,500
|
|
|
|
|
|
|
|
|
Less beginning inventory........
|
161,700
|
|
|
|
|
|
|
|
|
Required purchases.................
|
$240,800
|
|
|
|
|
|
|
* $330,000 sales × 70% cost ratio = $231,000
†$245,000 × 70% = $171,500
b. Schedule of expected cash disbursements for merchandise purchases:
|
|
|
January
|
|
February
|
|
March
|
|
Quarter
|
|
|
December purchases...............
|
$178,000
|
|
|
|
|
|
$178,000
|
|
|
January purchases...................
|
60,200
|
|
$180,600
|
|
|
|
240,800
|
|
|
February purchases.................
|
|
|
|
|
|
|
|
|
|
March purchases.....................
|
|
|
|
|
|
|
|
|
|
Total cash disbursements for purchases..............................
|
$238,200
|
|
|
|
|
|
|
3. Schedule of expected cash disbursements for selling and administrative expenses:
|
|
|
January
|
|
February
|
|
March
|
|
Quarter
|
|
|
Salaries and wages..................
|
$18,000
|
|
|
|
|
|
|
|
|
Advertising................................
|
15,000
|
|
|
|
|
|
|
|
|
Shipping.....................................
|
13,200
|
|
|
|
|
|
|
|
|
Other expenses.........................
|
26,400
|
|
|
|
|
|
|
|
|
Total cash disbursements for selling and administrative expenses................................
|
$72,600
|
|
|
|
|
|
|
4. Cash budget:
|
|
|
January
|
|
February
|
|
March
|
|
Quarter
|
|
|
Cash balance, beginning........
|
mce_markernbsp; 31,000
|
|
|
|
|
|
|
|
|
Add cash collections...............
|
316,500
|
|
|
|
|
|
|
|
|
Total cash available................
|
347,500
|
|
|
|
|
|
|
|
|
Less cash disbursements:
|
|
|
|
|
|
|
|
|
|
Purchases of inventory.......
|
238,200
|
|
|
|
|
|
|
|
|
Selling and administrative expenses............................
|
72,600
|
|
|
|
|
|
|
|
|
Purchases of land................
|
0
|
|
|
|
|
|
|
|
|
Cash dividends.....................
|
30,000
|
|
|
|
|
|
|
|
|
Total cash disbursements...
|
340,800
|
|
|
|
|
|
|
|
|
Excess (deficiency) of cash...
|
6,700
|
|
|
|
|
|
|
|
|
Financing:
|
|
|
|
|
|
|
|
|
|
Etc.
|
|
|
|
|
|
|
|
5. Prepare an absorption costing income statement for the quarter ending March 31 as shown in Schedule 9 in the chapter.
6. Prepare a balance sheet as of March 31.