| A relatively new company has determined they need to engage in a budgeting process as part of their new strategic plan. The Company has asked you to provide the following items for the months of January, February, and March of 2017: A) a Purchases Budget; B) a Cash Budget; They have provided you with the planning document below and also, with their December 31, 2016 Balance Sheet. | PLANNING DATA FOR 2017 | | | | | All Sales are on Credit | | | Collections of Accounts Receivable: | | | Month of Service | 48.00% | | Month following Service | 52.00% | | | | | Actual December 2016 Sales | $200,000 | | Expected Sales in Dollars | | | January | $240,000 | | February | $195,000 | | March | $175,000 | | April | $210,000 | | | | | Cost of Goods Sold as a percentage of selling price. | 62.00% | | | | | Planned ending inventory as a percentage of next month's required inventory. | 70.00% | | | | | Purchases are are all on credit. | | | Purchases paid in current month | 25.00% | | Purchases paid in next month | 75.00% | | Actual Purchases made in December 2016 | $137,800 | | | | | Sales commission as a percent of sales | 2.50% | | Sales commission are paid one month after the month incurred. | | | | | | Advertising expenses have a fixed and variable portion: | | | Fixed portion | $4,400 | | The fixed portion of the advertising is paid in the current month. | | | Variable portion as a percentage of sales | 1.00% | | The variable portion is paid one month after the month incurred. | | | | | | Insurance policy: | | | Months of insurance coverage paid for | 12 | | The policy period is from March 1 to February 28 each year | | | The premium to be paid on March 1, 2017 is | $2,100 | | The premium will be charged to prepaid insurance | | | | | | Selling and Administrative expenses have a fixed and variable portion: | | | Fixed portion is paid in the month incurred | $26,000 | | Variable portion as a percentage of sales | 3.00% | | S&A expenses are paid one month after the month incurred | | | | | | Depreciation expense per month | $4,600 | | | | | The annual interest rate on the long term debt is | 4.50% | | Interest is incurred on the principal balance outstanding each month. | | | Interest is paid on a quarterly basis. Interest for November to January will be paid February 1. | | No principal payments are scheduled to be made on the long-term debt until August of 2017 | | | | | Income Tax rate | 30% | | Accrued taxes are paid on the 15th of January, April, July and October | | | | | | The Company's Board of Directors plans to declare a dividend on February 20 | $11,000 | | It will be paid on March 15. | | | BALANCE SHEET | | December 31, 2016 | | | | | ASSETS | | Current Assets | | | Cash | $108,200 | | Accounts Receivable | 104,000 | | Inventory | 104,160 | | Prepaid Insurance | 350 | | Total Current Assets | 316,710 | | | | | Property Plant and Equipment | | | Office Equipment | 276,000 | | Accumulated Depreciation | (55,200) | | Total Property Plant and Equipment | 220,800 | | | | | Total Assets | $537,510 | | | | | | | | LIABILITIES AND SHAREHOLDERS EQUITY | | LIABILITIES | | Current Liabilities | | | Accounts Payable - Purchases | $103,350 | | Sales Commission Payable | 5,000 | | Selling and Admin Payable | 6,000 | | Advertising Payable | 2,000 | | Interest Payable | 1,313 | | Dividends Payable | - | | Income Taxes Payable | 15,530 | | Total Current Liabilities | 133,193 | | | | | Long Term Debt | 175,000 | | | | | Total Liabilities | 308,193 | | | | | SHAREHOLDERS' EQUITY | | Common Stock | 140,000 | | Retained Earnings | 89,318 | | | | | Total Shareholders' Equity | 229,318 | | | | | Total Liabilities and Shareholders Equity Part 1 - | Based on the information available to you, complete the Purchases Budget worksheet below: | PURCHASES BUDGET | | PLANNING FOR 2017 | | | | | | | | | | | Solution: | Actual | | Budgeted | | Budgeted | | Budgeted | | | Dec 2016 | | January | | February | | March | | Desired Ending Inventory Balance for Current Month | $104,160 | | | | | | | | Current Month's Cost of Sales | 124,000 | | | | | | | | Inventory Needed to be Available during Current Month | 228,160 | | - | | | | | | Less: Beginning Inventory of Current Month | 86,800 | | | | | | | | Budgeted Purchase for Next Month Sales Part 2 - Complete the cash budget worksheet: | PLANNED CASH TRANSACTIONS and CASH BUDGET | | For the Month Ending, | | | | | | | | | | Jan 31, 2017 | | Feb 28, 2017 | | Mar 31, 2017 | | CASH IN | | | | | | | 48% This Month's Sales | | | | | | | 52% of Last Month's Sales | | | | | | | | | | | | | | Total Cash Receipts | | | | | | | | | | | | | | CASH OUT | | | | | | | 75% Last Month's Purchases | | | | | | | 25% This Month's Purchases | | | | | | | Commissions | | | | | | | Advertising | | | | | | | Selling & Admin. | | | | | | | Insurance | | | | | | | Interest | | | | | | | Dividends | | | | | | | Income Tax | | | | | | | | | | | | | | Total Cash Disbursements | | | | | | | | | | | | | | CASH BUDGET | | | | | | | Beginning Balance of Cash | | | | | | | | | | | | | | Cash Receipts | | | | | | | | | | | | | | Cash Available | | | | | | | | | | | | | | Cash Disbursements | | | | | | | | | | | | | | Ending Cash Balance | | | | | | | | | | | | | | $141,360 | | $- | | | | | | | $537,510 | | | |
