Comprehensive budget question: wholesaler Universal Electric Company is a small, rapidly growing wholesaler of consumer electrical product. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Universal's general manager of marketing, has recently completed a sales forecast. She believes that the company's sales during each of the months in the first quarter of next year will increase by 10 per cent each month over the previous month's sales. Wilcox then expects sales to remain constant for several months. Universal's projected balance sheet as at 31 December this year is as follows:

- Universal's managing director, Beth Davies-Lowry, has indicated that the rm should, just after the new year begins, invest $125 000 in an automated inventory- handling system to control the movement of inventory in the rm's warehouse. To the extent possible, these equipment purchases would be nanced from the rm's cash and marketable securities. Davies-Lowry believes that Universal needs to keep a minimum cash balance of $25 000. If necessary, the remainder of the equipment purchases would be nanced using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 5 per cent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the rst quarter if possible. - Universal's board of directors has indicated an intention to declare and pay dividends of $50 000 on the last day of each quarter. - The interest on any short-term borrowing would be paid when the loan is repaid. Interest on Universal's long-term loan is paid semi-annually, on 31 January and 31 July, for the preceding six-month period. - Property taxes are paid half-yearly on 28 February and 31 August for the preceding six-month period. Required: Prepare Universal's annual budget for the rst quarter of next year commencing 1 January by completing the following schedules and statements: 1. Sales budget Current Next year December January February March 1st quarter Total sales Cash sales Credit sales 2. Cash receipts budget Cash receipts budget January February March 1st quarter Cash sales Cash receipts from credit sales made during current month Cash receipts from credit sales made during preceding month Total cash receipts Page 3 of 5 3. Purchases budget Current Next year year December January February March 1st quarter Budgeted cost of goods sold Add Desired ending inventory Total goods needed Less Expected beginning inventory Purchases 4. Cash paments budget Cash payments budget February March 1st quarter Inventory purchases Cash payments for purchases during the current month* Cash payments for purchases during the preceding monthl Total cash payments for inventory purchases Other expenses Sales salaries Advertising and promotion Interest on long-term loan: Property taxes1C Sales commissions Total cash payments for other expenses Total cash payments * 40% of the current month 's purchases (schedule 3). 7L 60% 0f the preceding month '5 purchases (schedule 3). 72' Long-term loan interest is paid every six months, on 31 January and 31 July. Property taxes are also paid every six months, on 28 February and 31 August. Administrative salaries Page 4 of 5 5. Complete the rst three lines of the summary cash budget. Then do the analysis of short- term nancing needs in requirement 6, and then nish requirement 5. Summary cash budget 1st quarter W\" Mm" Cash receipts (from schedule 2) Less Cash payments (from schedule 4) Change in cash balance during quarter due to operations Sale of marketable securities (2 January) Proceeds from bank loan (2 January) Purchase of equipment Repayment of bank loan (31 March) Interest on bank loan Payment of dividends Change in cash balance during 1st quarter Cash balance, 1 January Cash balance, 31 March 6. Analysis of short-term nancial needs: Projected cash balance as at 31 December in current year Less Minimum cash balance Cash available for equipment purchases Projected proceeds from sale of marketable securities Cash available Less Cost of investment in equipment Required short-term borrowing 7. Prepare Universal's budgeted income statement for the rst quarter. (Ignore income taxes.) 8. Prepare Universal's budgeted statement of retained earnings for the rst quarter. 9. Prepare Universal's budgeted balance sheet as at 31 March. (Hint: On 31 March, long- terrn loan interest payable is $5 000 and property taxes payable are $900.) Page 5 of 5 Case Information and Requirements Source: Case 9.42 LangeldSmith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H. 2018, Management Accounting: Information for Creating and Managing Value, 8th edition, McGraw-Hill Education (Australia) Pty Ltd. Universal Electric Company is a small, rapidly growing wholesaler of consumer electrical products. The lm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Universal's general manager of marketing, has recently completed a sales forecast. She believes that the company's sales during the rst quarter of next year will increase by 10 per cent each month over the previous month's sales. Wilcox then expects sales to remain constant for several months. Universal's projected balance sheet as at 31 December this year is as follows: Cash $ 35 000 Accounts receivable 270 000 Marketable securities 15 000 Inventory 154 000 Buildings and equipment (net of acc. depr.) 626 000 Total assets Accounts payable $176 400 Long-term loan interest payable 12 500 Property taxes payable 3 600 Long-term loan payable (10% pa.) 300 000 Share capital 500 000 Retained earnings 107 500 Total liabilities and shareholders' equity $1 100 000 Jack Hanson, the assistant accountant, is now preparing a monthly budget for the rst quarter of next year. In the process, the following information has been accumulated: - Projected sales for December this year are $400 000. Credit sales typically are 75 per cent of total sales. Universal's credit experience indicates that 10 per cent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. - Universal's cost of goods sold generally runs at 70 per cent of sales. Inventory is purchased on credit, and 40 per cent of each month's purchases is paid during the month of purchase. The remainder is paid during the following month. In order to have adequate inventory on hand, the rm aims to have inventory at the end of each month equal to half of the next month's projected cost of goods sold. Hanson has estimated that Universal's other monthly expenses will be as follows: Sales salaries $18 000 Advertising and promotion 19 000 Administrative salaries 21 000 Depreciation 25 000 Interest on long-term loan 2 500 Property taxes 900 In addition, sales commissions run at the rate of 1 per cent of sales. Page 2 of 5