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Budget Assignment - ACCT 331-001 Summer 2013 Due August 5th by midnight in bbLearn You have just been hired as a management trainee by Kline Sales Company, a nationwide distributor of designer 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 three months, starting April 1. You are anxious to make a favorable 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 $19 each. Recent and forecasted sales in units are as follows: January (actual) February (actual) March (actual) April May 22,000 21,000 27,000 38,800 44,700 June July August September 49,300 39,000 41,000 33,500 The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed to equal 80% of the next month's sales in units. The ties cost the company $10 each. Purchases are paid for as follows: 40% in the month of purchase and the remaining 60% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 30% of a month's sales are collected by month-end. An additional 60% is collected in the following month, and 7% is collected in the second month following sale. The remaining uncollectible portion is treated as a bad debt. The company's monthly operating expenses are given below: Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous 1 $.70 per tie $58,000 $17,000 $1,800 $2,100 $2,600 2 All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Equipment is purchased for cash in April for $15,000. Land will be purchased for $350,000 with the first payment made during May for $150,000 cash and the remainder paid in June. The company declares dividends of $10,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below: Balance Sheet as of March 31 Liabilities and Stockholders' Equity Assets Cash Accounts receivable ($48,000 February sales; $168,000 March sales) Inventory (21,400 units x $10/unit) Prepaid insurance Fixed assets, net of depreciation Total assets $39,800 Accounts payable 216,000 Dividends payable 214,000 Capital stock 16,000 Retained earnings 10,000 316,000 235,500 202,500 Total liabilities and $688,300 stockholders' equity The company has an agreement with a 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 $150,000. 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. 2 $126,800 $688,300 Budget Assignment - ACCT 331-001 Summer 2013 Due August 5th by midnight in bbLearn REQUIRED: Prepare in good form a master budget for the three-month period ending June 30 using the attached template. Round answers to the nearest whole dollar. (40 points) Your schedules should be prepared in excel and you should use formulas. The format should be in the form you would present to a client. Excel formatting (10 points) **Use print preview to be sure that your formatting is correct.** 3