Project - Case 1
Davis Dry Goods distributes silk ties. You are in charge of creating Davis' master budget for the upcoming second quarter, April - June 2015.
Davis desires a minimum ending cash balance each month of $11,000. The ties are sold to retailers for $9 each. Recent and forecasted sales in units are as follows:
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January (actual)..........
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20,000
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June .........................
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60,000
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February (actual) .......
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24,000
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July............................
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40,000
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|
March (actual) ............
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28,000
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August ......................
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W,GDO
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|
April .............................
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35,000
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September ...............
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32,000
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May .............................
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45,000
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|
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The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed to equal 90% of the next month's sales in units. The ties cost the company $5 each.
Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month's sales are collected by month-end. An additional 75% is collected in the following month. Bad debts have been negligible.
The company's monthly selling and administrative expenses are given below:
Variable:
Sales commissions ............ $1 per he
Fixed:
Wages and salaries ....................... $22,000
Utilities ................................... $14,000
Insurance ................................ $1,200
Depreciation ...................................... $1,500
Miscellaneous .......................... $3,030
All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired.
Davis has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month. 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 the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $11,000 in cash.
Land will be purchased during May for $25,000 cash Davis declares and pays dividends of $11,000 in the first month each quarter. The company's balance sheet at March 31 is given below:
Assets
Cash........................................................... $ 10,000
Accounts receivable ............................ 189,000
Inventory (31,500 ties) .............................. 157,500
Prepaid Insurance ....................................... 14,400
Fixed assets, net ...................................... 203,700
Total Assets............................................ $ 574,600
Liabilities and Stockholders' Equity
Accounts Payable ....................................... $ 85,750
Capital Stock .................................... 312,000
Retained Earnings ............................................ 176.850
Total Liabilities and Stockholders' Equity .......... $ 574.600
Required.
Prepare a master budget for Davis Dry Goods for the quarter ending June 30, 2015. Include the following detailed budgets:
1. a. A sales budget by month and in total.
b. A schedule of expected cash collections from sales, by month and in total. c A merchandise purchases budget. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
2. A cash budget by month, but not in total
3. A budgeted income statement for the three-month period ending June 30.
4. A budgeted balance sheet as of June 30.