1. Prepare a sales budget for January through April. The selling price per unit is $40.00. Use the last five digits of

your student identification number to fill in the blanks on the budgeted sales in units. If your number contains a 0 use

10 instead. For example, if the last five digits in your student ID number are 14607, the budgeted sales in units would

be:

December of the previous year 50000

January 80000

February 70000

March 40000

April 20000

2. Prepare a purchases budget for January through March, and the first quarter in total. Assume that the company

only sells one product that can be purchased at $18.00 per unit. The market for this product is very competitive and

customers highly value service such as quality and on time delivery of the product. Also assume that currently it is

companys inventory policy that ending inventory should equal 50% of next months projected sales. So for this

scenario, beginning inventory in January was at 50% of the budgeted January sales.

3. Prepare a cash budget for January through March and for the first quarter in total. The company maintains a

minimum cash balance of $50,000.00, and this was the balance in the cash account on January 1. Past experience

shows that 30% of sales are collected in the month of the sale, and 70% in the month following the sale. Selling cost is

$12 per unit. Monthly expenses include $27,000 for rent, $14,000 for advertising, and $6,000 for depreciation. All

expenses are paid in the current month except inventory purchases, which are paid in the month following purchase

(i.e. January purchases are paid in February). On January 1st there was an accounts receivable balance based on the

sales in December of the previous year that still need to be collected. Also there was an outstanding accounts payable

balance of $100,000. The company has an open line of credit with a bank and can borrow at an annual rate of 12%. For

simplification assume that all loans are made at the beginning of the month when borrowing is needed, and repayment

of the loan are made at the end of a month in which there is enough cash to make the payment. Interest is paid each

month on the outstanding loan balance even if that requires additional borrowing to cover it. Further, all loan

borrowings and repayments (except for payment of the interest portion) can only be made in increments of $1000. The

company would like to pay its debts, or a portion thereof, as soon as it has enough cash to do so.

4. Prepare the Budgeted Income Statement based on the information given above.

Label this budget scenario as A.,

5. Repeat steps 2-4 for budget scenarios B and C using the following Desired ending inventory assumptions:

Ending Inventory

B. 90%

C. 3%

6. Write a brief analysis of the three inventory policies and explain which policy the company should choose. Your

write-up should include a discussion of the results you obtained from the analyses above and should be in the form of a

one-page Memo to the President of the company (make up a name). Assume that you are writing on behalf of a

Managerial Accounting consultant advising the President about the companys three inventory policies as to which one

is best for the company and why. Proper formatting of the budgets, organization, grammar, and spelling are important.

7. Print out your spreadsheet formula sheet and upload it along with the project. It is best if you upload a pdf version

of your project to Blackboard as sometimes other file formats are difficult to open.