Problem - Master Budget

Addams Company, a merchandising firm that sells one product, estimates it will sell 12,000 units of its product at $60 per unit in December.

In November, the company prepared other information to show budget for December, as shown here:

Merchandise inventory, December 1: 2,000 units

Desired merchandise inventory for December 31: 3,000 units

Cost per unit of merchandise purchases: $40

Selling and administrative expenses: $200,000

Cash balance, December 1: $30,000

November sales: $600,000

The company estimates that 60% of each month's sales are collected in the month of sale and that the remaining 40% is collected in the month after sale.

The $200,000 of selling and administrative expenses includes $40,000 of depreciation.

The company pays for half of the merchandise purchases during the month of purchase and pays the remainder during the month following purchase. Estimated merchandise purchases for November are $340,000.

All other out-of-pocket expenses are paid for in cash.

Please answer the following:

1. How many units of merchandise will Addams budget to purchase in December? What is the dollar amount of Addams' budgeted merchandise purchases for December?

2. Show budgeted income statement for the month ended December for Addams Company.

3. Show statement of estimated cash flows for the month ended December for Addams Company.