Question
For mangerial accounting Completing a Master Budget [L02] The following data relate to the operations of Gaudreau Company, which distributes consumer goods: Current assets as
For mangerial accounting
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:
1. Complete the following schedule:
Schedule of Expected Cash Collections
January February March Quarter
Cash sales $28,000
Credit sales 36,000
Total collections $64,000
2. Complete the following:
Merchandise Purchasing Budget
January February March Quarter
Budgeted cost of goods sold $49,000*
Add desired ending inventory 11,200**
Total needs $60,200
Less beginning inventory 9,800
Required purchases $50,400
* $70,000 sales X 70% - $49,000.
** $80,000 X 70% X 20% - $11,200.
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