Elizabeth Company is preparing its master budget for the quarter ending March 31. It sells a single product for $20 a unit. Budget sales are 40% cash and 60% on credit. All credit sales are collected in the month following the sales. Budgeted sales for the next four months are as follow:
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Months
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January
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February
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March
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April
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Sales in units
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1,200
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1,000
|
1,600
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1,400
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At December 31, the balance in account receivable is $10,000, which represents the uncollected portion of December sales. The company desires merchandise inventory equal to 30% of the next month's sales in units. The December 31 balance of merchandise inventory is 340 units, and inventory cost is $10 per unit. 40% of the purchases are paid in the month of purchase and 60% are paid in the following month. At December 31, the balance of accounts payable is $8,000, which represents the unpaid portion of December's purchases. Operating expenses are paid in the month incurred and consist of
Sales commissions (10% of sales)
Freight (2% of sales)
Office salaries ($2,400 per month)
Rent ($4,800 per month)
Depreciation expense is $4,000 per month
A minimum cash balance of $10,000 is required, and the cash balance at December 31 is $10,200. Loans are obtained at the end of a month in which a cash shortage occurs. Interest is 1% per month, based on the beginning of the month loan balance, and must be paid each month. If an excess of cash exists, loan repayments are made at the end of the month. At December 31, the loan balance is $0.
Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each of the months of January, February, and March that includes the:
Sales budget
Table of cash receipts
Merchandise purchase budget
Table of cash disbursements for merchandise purchases
Table of cash disbursements for selling and administrative expense
Cash budget, including information on the loan balance