ACCOUNTING 2302 Summer 2020 - Kristy McDermott, CPA BUDGET PROJECT/COMP PROB #2 Objective: To understand and apply the basic concepts of profit planning. Due date: Tuesday, August 4th, 11:59 pm. (Submit the assignment in blackboard.) Late submissions will be penalized 15 points and will be accepted no later than August 9th, 11:59 pm. Grading: This project is worth 40 points. Required: You need to prepare a comprehensive 6-month budget, including supporting schedules and a report for the period January 1, 2021 to June 30, 2021 for Henron, Inc (a fictional company). This project must include: 1. Sales Forecast and Budget.......... 2. Cash Receipts budget................ 3. Purchase budget........................ 4. Cash Purchases Disbursements budget..... 5. Operating Expense budget...... 6. Summary Cash budget............ 7. Budgeted Income Statement..... 8. Budgeted Balance Sheet............ Notes and Hints 1. All 8 parts must be submitted before I grade the project. 2. The schedules/budgets must be prepared on Excel. The templates I have prepared must be used as is. 3. Part of this project is demonstrating proper use of Excel. You may input a \"hard number\" into a pink cell. All yellow cells must be formula based (use appropriate cell referencing). If a yellow cell should remain blank, please put a 0 in the cell. It is okay if it shows as a dash (-). 4. I recommend constructing the formulas for one month and then copying the formulas over to the remaining months. Beware of exceptions to this rule and let me know if you don't know how to do specific formulas, copy/paste, etc. 5. You may ignore interest and taxes. 6. The budget templates and this instruction sheet are located on the course materials page. Make sure you save the file to excel and then open the file through Excel (not Internet Explorer). 7. Check figures are also located under \"Comprehensive Problem #2\" in Blackboard. Page 1 of 3 INFORMATION FOR HENRON, INC. BUDGET PROJECT 1. Heron, Inc. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for Heron, so Heron has no manufacturing-related costs. 2. As of November 2020, each lawn chair costs Heron $4.50 per unit. Henron sells each chair for $10 per unit. 3. The estimated sales (in units) are as follows: Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 June 21 July 21 11,250 11,500 9,000 11,400 12,200 15,600 18,200 21,542 18,500* *You can type in this amount (instead of a cell reference) if you use this amount for a formula 4. The company plans to raise the sales price to $11.25 per unit beginning May 1, 2021. The sales forecast (i.e., estimated sales in units) takes this price increase into account. 5. Twenty-two percent of any month's sales are for cash, and the remaining 78% are on credit. Thirty percent of the credit sales are collected in the month of sale, 56% are collected in the following month, and 9% are collected in the second month after the sale. The remaining receivables are deemed uncollectible. Bad debts are written off in the month the debt is deemed uncollectible (e.g. if the sale is made in January and is not collected by the end of March, it is written off in March.) No accrual for estimated bad debts is made in the month of sale. 6. The firm's policy regarding inventory is to stock (i.e. have in ending inventory) 38% of the forecasted demand in units (i.e., estimated sales) for the next month. Heron uses the first-in, first-out (FIFO) method in accounting for inventories. 7. Forty-five percent of the inventory purchases are paid for in the month of purchase and the remaining 55% are paid in the following month (i.e. all of the previous month's Accounts Payable are paid off by the end of any month.) 8. Per a prior contract, a cash payment of $50,000 for equipment previously purchased in 2020 is due in January. Another payment of $25,000 is due in February. Depreciation on the equipment previously purchased is included in the overhead cost detailed in item 9 below. Also, dividends of $14,000 are to be paid in March. 9. Monthly operating expenses consist of the following (if these are cash expenses, they are paid when incurred): Page 2 of 3 Salaries and Wages Sales Commissions Rent Other Variable Cash Expenses Supplies Expense: See note Other: See note $3,500 6% of sales revenue $7,500 4% of sales revenue $1,500 $51,000 Note: Other general and administrative overhead is expected to be $51,000 per month. Of this amount, $24,000 represents depreciation and the rest is other non-cash expenses. The company maintains on hand one month's worth of supplies. 10. The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. Ignore interest on the loan in your calculations, but minimize the amount borrowed and pay off any loans as soon as possible. 11. The cash balance at the beginning of January is $15,000. There will be no notes payable as of this date. 12. See below the other Balance Sheet accounts with their expected balances as of December 31, 2020: Supplies..............................................$ 1,500 Property, Plant and Equipment...........1,050,000 Accumulated Depreciation................. 526,475 Common Stock................................... 200,000 Retained Earnings.............................. 330,779 Page 3 of 3 HENRON BUDGET PROJECT, Spring 2020 Cash Receipts Budget Total Cash Receipts, January: Total Cash Receipts, Jan - June: Uncollectible, January: Uncollectible, Jan - June: Purchase Budget Total Purchases, Jan - June: $ 98,990 $821,822 $ 4,388 $ 27,671 $411,984 Cash Budget Total Cash Disbursements, Jan - June: $806,550 Ending Cash Balance, June: $ 30,272 Budgeted Income Statement Operating Expenses, Total: Net Income, Total: Budgeted Balance Sheet Total Assets: $501,580 $ 31,778 $597,612