Problem 8-29 (Algo) Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10] The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash $ 9,200 Accounts receivable $ 26,800 Inventory $ 49,800 Building and equipment, net $ 104,400 Accounts payable $ 29,925 Common stock $ 150,000 Retained earnings $ 10,275 The gross margin is 25% of sales. Actual and budgeted sales data: March (actual) $ 67,000 April $ 83,000 May $ 88,000 June $ 113,000 July $ 64,000 Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory. Monthly expenses are as follows: commissions, 12% of sales; rent, $4,000 per month; other expenses (excluding depreciation), 6% of sales. Assume these expenses are paid monthly. Depreciation is $783 per month (includes depreciation on new assets). Equipment costing $3,200 will be purchased for cash in April. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank allowing it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and, for simplicity, we will assume 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 preceding data: Complete the schedule of expected cash collections. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases. Complete the cash budget. Prepare an absorption costing income statement for the quarter ended June 30. Prepare a balance sheet as of June 30.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Problem 8-29 (Algo) Completing a
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
Current assets as of March 31:
Cash $ 9,200
Accounts receivable $ 26,800
Inventory $ 49,800
Building and equipment, net $ 104,400
Accounts payable $ 29,925
Common stock $ 150,000
Retained earnings $ 10,275
The gross margin is 25% of sales.
Actual and budgeted sales data:
March (actual) $ 67,000
April $ 83,000
May $ 88,000
June $ 113,000
July $ 64,000
Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
Monthly expenses are as follows: commissions, 12% of sales; rent, $4,000 per month; other expenses (excluding depreciation), 6% of sales. Assume these expenses are paid monthly. Depreciation is $783 per month (includes depreciation on new assets).
Equipment costing $3,200 will be purchased for cash in April.
Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank allowing it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and, for simplicity, we will assume 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 preceding data:
Complete the schedule of expected cash collections.
Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.
Complete the cash budget.
Prepare an absorption costing income statement for the quarter ended June 30.
Prepare a balance sheet as of June 30.
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