Completing a Master Budget [L02]

The following data relate to the operations of Gaudreau Company, which distributes consumer goods:

Current assets as of December 31:

Cash............................ $6,000

Accounts receivable............... $36,000

Inventory........................ $9,800

Buildings and equipment, net ......... $110,885

Accounts payable .................. $32,550

Common shares.................... $100,000

Retained earnings .................. $30,135

a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

b. Actual and budgeted sales data are as follows:

December (actual) ...... $60,000

January.............. $70,000

February.............. $80,000

March................ $85,000

April................. $55,000

c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.

d. Each month's ending inventory should equal 20% of the following month's budgeted cost of goods sold.

e. One-quarter of a month's inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.

f. Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter.

g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.

h. Management would like to maintain a minimum cash balance of $6,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan (also in increments of $1,000) plus accumulated interest at the end of the quarter.

Required:

Using the data above:

5. Complete the following cash budget:

January February March Quarter

Cash balance, beginning ......... $ 6,000

Add cash collections ............ 64,000

Total cash available ............. 70,000

Less cash disbursements:

For inventory ................ 45,150

For operating expenses ........ 19,400

For equipment ............... 3,000

Total cash disbursements ........ 67,550

Excess (deficiency) of cash ........$ 2,450

Financing

Etc.