A company is preparing a Cash Budget for the second quarter of the coming year. Management would like to give you additional exposure to budgeting during your internship and has assigned you the task of preparing this Cash Budget.

The following data has been forecasted:

Sales: April $150,000 May $157,000

Merchandise Purchases: April 107,000 May 112,400

OPERATING EXPENSES

Payroll: April 13,600 May 14,280

Advertising: April 5,400 May 5,700

Rent: April 2,500 May 2,500

Depreciation: April 7,500 May 7,500

END OF APRIL BALANCE

Bank loan payable: April 26,000

ADDITIONAL DATA:

Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000.

Purchases are all on credit, with 40% paid in the month of purchase; the balance is paid in the following month.

Operating expenses are paid in the month they are incurred.

A minimum cash balance of $25,000 is required at the end of each month.

Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available.

REQUIRED:

Prepare the companys cash budget for May. Show the ending loan balance at May 1.

After accurate completion of the cash budget for the month of May. Management of the company wants to begin using Flexible Budgets. Your next task is to create a flexible budget from the information below with a basic variance analysis.

SALES (20,000 UNITS; $31.50 PER UNIT). $630,000

Cost of sale:

Direct materials: $210,000

Direct labor: 168,000

Variable overhead: 63,000

Fixed overhead: 80,000 500,000

Gross Profit $130,000

OPERATING EXPENSE:

Fixed $12,000

Variable 40,000 62,000

Income from Operations $78,000

THE COMPANYS ACTUAL ACTIVITY FOR THE YEARS FOLLOWS:

SALES (21,000 UNITS). $651,000

Cost of goods sold:

Direct materials: $231,000

Direct labor: 168,000

Variable overhead: 73,500

Fixed overhead: 77,500 550,000

Gross Profit $101,000

OPERATING EXPENSE:

Fixed $12,000

Variable 39,500 51,500

Income from Operations $49500

REQUIRED: Prepare a flexible budget performance report for the year using the contribution margin format. You will be Flexing the budget to a sales level of 21,000.