CHECK FIGURE (2)June ending cash balance $10,730 (3)Net income $151,880 You have just been hired as a management trainee by Cosmos Sales Company, a nationwide distributor of a designers silk ties The company has an exclusive franchise on the distribution of the 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 January (actual) 20,000 February (actual) 24,000 March (actual) 28,000 April 35,000 May 45,000 June 60,000 July 40,000 August 36,000 September 32,000 The large buildup in sales before and during June is due to Fathers Day Ending inventories are supposed to equal 90 of the next months 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 months 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 Page 328 The companys monthly selling and administrative expenses are given below Variable Sales commissions $1 per tie Fixed Wages and salaries $22,000 Utilities $14,000 Insurance $1,200 Depreciation $1,500 Miscellaneous $3,000 Table Summary The table has two columns Column two, rows one, and three are blank All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired Land will be purchased during May for $25,000 cash The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter The companys balance sheet at March 31 is given below Assets Cash $ 14,000 Accounts receivable ($48,000 February sales $168,000 March sales) 216,000 Inventory (31,500 units) 157,500 Prepaid insurance 14,400 Fixed assets, net of depreciation 173,100 Total assets $575,000 Liabilities and Shareholders Equity Accounts payable $ 85,750 Dividends payable 12,000 Common shares 300,000 Retained earnings 177,250 Total liabilities and shareholders equity $575,000 Table Summary The table consists of 2 columns and 13 rows The entries under Column 1 are left justified The entries under Column 2 are right justified The row entries are as follows Row 1 Column 1, Cash Column 2, $14,000 Row 2 Column 1, Accounts receivable ($48,000 February sales Column 2, 216,000 Row 3 Column 1, $168,000 March sales) Column 2, No entry Row 4 Column 1, Inventory (31,500 units) Column 2, 157,500 Row 5 Column 1, Prepaid insurance Column 2, 14,400 Row 6 Column 1, Fixed assets, net of depreciation Column 2, 173,100, single underlined Row 7 Column 1, Total assets Column 2, $575,000, double underlined Row 8 Column 1, Liabilities and Shareholders' Equity Column 2, No entry Row 9 Column 1, Accounts payable Column 2, $85,750 Row 10 Column 1, Dividends payable Column 2, 12,000 Row 11 Column 1, Common shares Column 2, 300,000 Row 12 Column 1, Retained earnings Column 2, 177,250, single underlined Row 13 Column 1, Total liabilities and shareholders' equity Column 2, $575 000, double underlined The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $140,000 The interest rate on these loans is 1 per month, and, for simplicity, we will assume that interest is not compounded At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash Calculate Sales budget April May June Quarter Budgeted sales in units Selling price per unit Total Sales Schedule of expected Cash Collections February Sales March sales April sales May sales June sales Total cash collections Merchandise purchases budget Budgeted sales in units Add budgeted ending inventory Total needs Less beginning inventory Required unit purchases Unit cost Required dollar purchases 90 of the next months sales in units Budgeted cash disbursements for merchandise purchases March purchases April purchases May purchases June purchases Total cash payments

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CHECK FIGURE (2)June ending cash balance: $10,730; (3)Net income: $151,880 You have just been hired as a management trainee by Cosmos Sales Company, a nationwide

CHECK FIGURE

(2)June ending cash balance: $10,730;
(3)Net income: $151,880

You have just been hired as a management trainee by Cosmos Sales Company, a nationwide distributor of a designers silk ties. The company has an exclusive franchise on the distribution of the 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:

January (actual)	20,000
February (actual)	24,000
March (actual)	28,000
April	35,000
May	45,000
June	60,000
July	40,000
August	36,000
September	32,000

The large buildup in sales before and during June is due to Fathers Day. Ending inventories are supposed to equal 90% of the next months 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 months 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.

Page 328

The companys monthly selling and administrative expenses are given below:

Variable:
Sales commissions	$1 per tie
Fixed:
Wages and salaries	$22,000
Utilities	$14,000
Insurance	$1,200
Depreciation	$1,500
Miscellaneous	$3,000
Table Summary: The table has two columns. Column two, rows one, and three are blank.

All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The companys balance sheet at March 31 is given below:

Assets
Cash	$ 14,000
Accounts receivable ($48,000 February sales; $168,000 March sales)	216,000
Inventory (31,500 units)	157,500
Prepaid insurance	14,400
Fixed assets, net of depreciation	173,100
Total assets	$575,000
Liabilities and Shareholders Equity
Accounts payable	$ 85,750
Dividends payable	12,000
Common shares	300,000
Retained earnings	177,250
Total liabilities and shareholders equity	$575,000
Table Summary: The table consists of 2 columns and 13 rows. The entries under Column 1 are left justified. The entries under Column 2 are right justified. The row entries are as follows. Row 1: Column 1, Cash. Column 2, $14,000. Row 2: Column 1, Accounts receivable ($48,000 February sales. Column 2, 216,000. Row 3: Column 1, $168,000 March sales). Column 2, No entry. Row 4: Column 1, Inventory (31,500 units). Column 2, 157,500. Row 5: Column 1, Prepaid insurance. Column 2, 14,400. Row 6: Column 1, Fixed assets, net of depreciation. Column 2, 173,100, single underlined. Row 7: Column 1, Total assets. Column 2, $575,000, double underlined. Row 8: Column 1, Liabilities and Shareholders' Equity. Column 2, No entry. Row 9: Column 1, Accounts payable. Column 2, $85,750. Row 10: Column 1, Dividends payable. Column 2, 12,000. Row 11: Column 1, Common shares. Column 2, 300,000. Row 12: Column 1, Retained earnings. Column 2, 177,250, single underlined. Row 13: Column 1, Total liabilities and shareholders' equity. Column 2, $575.000, double underlined.

The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $140,000. The interest rate on these loans is 1% per month, and, for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.

Calculate

Sales budget:	April	May	June	Quarter
Budgeted sales in units
Selling price per unit
Total Sales

Schedule of expected Cash Collections
February Sales
March sales
April sales
May sales
June sales
Total cash collections

Merchandise purchases budget:
Budgeted sales in units
Add budgeted ending inventory*
Total needs
Less beginning inventory
Required unit purchases
Unit cost
Required dollar purchases

*90% of the next months sales in units.

Budgeted cash disbursements for merchandise purchases:

March purchases
April purchases
May purchases
June purchases
Total cash payments