Assignment Four

You have just been hired as a management trainee by ABC Sales Company, a distributor of a designer's silk ties. The company has an exclusive franchise on the distribution of ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April $1.$ You are anxious to make a favourable impression on the president and have assembled the information below.

The company desires a minimum ending cash balance each month of $$10,000.$ The ties are sold to retailers for $$8$ each. Recent and forecasted sales in units are as follows:

$\backslash$table$[[$January $($actual$),20,000],[$February $($actual$),24,000],[$March $($actual$),28,000],[$April$,35,000],[$May$,50,000],[$June$,65,000],[$July$,40,000],[$August$,36,000],[$September$,32,000]]$

Ending inventories are supposed to equal $90\%$ of the next month's sales in units. The ties cost the company $$5$ each. Purchases are paid for as follows: $50\%$ in the month of purchase and the remaining $50\%$ in the following month. All sales are on credit, with no discount and payable within $15$ days. The company has found, however, that only $25\%$ of a month's sales are collected by month$-$end. An additional $50\%$ are collected in the following month, and the remaining $25\%$ are collected in the second month following sale. Bad debts have been negligible.

The company's monthly selling and administrative expenses are given below:

$\backslash$table$[[$Variable:$,],[$Sales commissions,$$1\mathrm{.}25$ per tie$],[$Fixed:$,],[$Wages and salaries,$$10,000$