Assessment 8: Master Budget and Flexible Budget Preparation Worksheet

Part A

Solve the given problem based on the following scenario.

The managers of Crouch Corp. need you to create the master budget for the months of January, February, and March of 2018.

Crouch Corp. Estimated Balance Sheet (as of December 31, 2017)

Assets ($)

Cash

32,400

Accounts receivable

472,500

Inventory

135,000

Total current assets

639,900

Equipment

486,000

Less accumulated depreciation

(60,750)

Net equipment

425,250

Total assets

1,065,150

Liabilities and Equity ($)

Accounts payable

324,000

Bank loan payable

13,500

Taxes payable (due 3/15/2018)

81,000

Total liabilities

418,500

Common stock

425,250

Retained earnings

221,400

Total stockholders' equity

646,650

Total liabilities and equity

1,065,150

Use the following data to prepare the master budget.

A single product of Crouch Corp. can be purchased for $25 per unit and resold for $50 per unit.

The anticipated inventory level on December 31, 2017, is 2,500 units.

This is actually more than its desired level for 2018, which is 20% of January's

projected sales (in units). Projected sales are:

5,250 units for January

6,750 units for February

8,250 units for March

7,500 units for April

The total sales consists of 25% cash sales and 75% credit sales.

60% of credit sales is collected in the first month after the sale, and 40% is collected

in the second month after the sale.

$112,500 of the accounts receivable balance for December 31, 2017, is collected in

January and $360,000 is collected in February.

20% of the payment for merchandise purchases is made one month after the

purchase, and 80% is made in the second month.

$72,000 of the balance of accounts payable for December 31, 2017, is paid in

January, and $252,000 is paid in February.

Salaries for salespersons average $45,000 per year. In addition to this, a sales

commission equal to 20% of each salesperson's sales is paid on a monthly basis.

Salaries for general administrative staff average $108,000 per year.

Each month, $1,500 is paid for maintainance expenses.

The December 2017 balance sheet reflects an equipment purchase in January 2017.

Using the straight-line method, depreciation will occur over 8 years, with no

salvage value. A full month's depreciation is recognized in the month in which the

asset is purchased.

The following new equipment purchases are projected for the next quarter:

$27,000 in January

$72,000 in February

$21,600 in March

The company has negotiated to purchase land for $112,500, which will be paid on

the last day of March, in cash.

Crouch Corp. has arranged an agreement with its bank to take additional loans

as needed. The bank charges 12% interest per year. Crouch Corp. pays interest on the

monthly beginning balance at the end of each month. The company may make

full or partial loan payments on the last day of the month. According to this

agreement with the bank, the minimum ending cash balance each month must

be $18,750.

The first quarter's income tax is paid on April 15 at a tax rate of 35%.

Using the data provided, prepare the master budget for the first quarter of 2018,

including all the following budgets:

1.

Monthly sales budgets (showing both budgeted unit sales and dollar sales)

2.

Monthly merchandise purchases budgets

3.

Monthly selling expense budgets

4.

Monthly general and administrative expense budgets

5.

Monthly capital expenditures budgets

6.

Monthly cash budgets

7.

Budgeted income statement for the entire first quarter (not for each month)

8.

Budgeted balance sheet as of March 31, 2018

Note: Round numbers to the nearest dollar and use supporting calculations.

Crouch Corp.

Sales Budgets

January, February, and March 2018

Budgeted Units

Budgeted Unit Price

Budgeted Total Dollars

Crouch Corp.

Merchandise Purchases Budgets

January, February, and March 2018

January

February

March

Total

#

Crouch Corp.

Selling Expenses Budget

January, February, and March 2018

January

February

March

Total

Crouch Corp.

General and Administrative Expenses Budget

January, February, and March 2018

January

February

March

Total

* Depreciation expense calculations

Annual Depreciation Expense

January

February

March

Total

Crouch Corp.

Capital Expenditures Budget

January, February, and March 2018

January

February

March

Crouch Corp.

Cash Budgets

January, February, and March 2018

January

February

March

Supporting calculations

January

February

March

Total

Note A: Cash receipts from customers

Note B: Cash payments for merchandise

Crouch Corp.

Budgeted Income Statement

For Three Months Ended March 2018

Crouch Corp.

Budgeted Balance Sheet

March 31, 2018