PROBLEM 7–25B Completing a Master Budget [LO2, LO4, LO7, LO8, LO9, LO10]
CHECK FIGURE
(2) May purchases: $52,640
(4) May 31 cash balance: $5,600
The following data relate to the operations of Dillinger Company, a wholesale distributor of consumer goods:
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Current assets as of March 31:
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Cash
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$10,500
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Accounts receivable
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$21,000
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Inventory
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$10,080
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Buildings and equipment (net)
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$140,000
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Accounts payable
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$36,500
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Capital stock
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$40,000
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Retained earnings
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$105,080
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a. Gross margin is 30% of sales.
b. Actual and budgeted sales data:
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March (actual)
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$70,000
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April
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$72,000
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May
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$73,000
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June
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$84,000
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July
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$80,000
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c. Sales are 70% for cash and 30% 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 20% of the following month’s budgeted cost of goods sold.
e. 25% of a month’s inventory purchases are paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable at March 31 are a result of March purchases of inventory.
f. Monthly expenses are as follows: salaries and wages $12,500; rent, $3,600 per month; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $1,000 per month (includes depreciation on new assets).
g. Equipment costing $9,000 will be purchased for cash in April.
h. The company must maintain a minimum cash balance of $5,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month; borrowing must be in multiples of $1,000. The annual interest rate is 12%. Interest is paid only at the time of repayment of principal; figure interest on whole months (1/12, 2/12, and so forth).
Required:
Using the above data:
1. Complete the following schedule:
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Schedule of Expected Cash Collections
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April
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May
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June
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Quarter
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Cash sales
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Credit sales
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Total collections
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2. Complete the following:
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Merchandise Purchases Budget
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April
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May
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June
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Quarter
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Budgeted cost of goods sold*
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$50,400
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$51,100
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Add desired ending inventory†
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10,220
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Total needs
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60,620
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Less beginning inventory
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10,080
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Required: purchases
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$50,540
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*For April sales: $72,000 sales × 70% cost ratio = $50,400
†$51,100 × 20% = $10,220
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Schedule of Expected Cash Disbursements—Merchandise Purchases
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April
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May
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June
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Quarter
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March purchases
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$36,500
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$36,500
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April purchases
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12,635
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$37,905
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50,540
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May purchases
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June purchases
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Total disbursements
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$49,135
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3. Complete the following:
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Schedule of Expected Cash Disbursements—Selling and Administrative Expenses
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April
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May
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June
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Quarter
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Salaries and wages
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$12,500
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Rent
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3,600
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Other expenses
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5,760
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Total disbursements
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$21,860
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4. Complete the following cash budget:
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Cash Budget
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April
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May
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June
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Quarter
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Cash balance, beginning
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$10,500
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Add cash collections
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71,400
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Total cash available
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81,900
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Less cash disbursements.
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For inventory
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49,135
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For expenses
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21,860
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For equipment
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9,000
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Total cash disbursements
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79,995
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Excess (deficiency) of cash
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1,905
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Financing:
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Etc.
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5. Prepare an absorption costing income statement similar to Schedule 9 for the quarter ending June 30. (Use the functional format in preparing your income statement, as shown in Schedule 9 in the text.)
6. Prepare a balance sheet as of June 30.