How did you find the depreciation in the monthly general and administrative expense budgets (#4) & the cash receipts from the customers in the monthly cash budget? Also, in the cash disbursement (#6 in the monthly cash budget), how do you find the payments for merchandise?

Brian Cullen MGMT 312 Professor Cooper February 18, 2013 Preparation of a Complete Master Budget Problem 7-5A Near the end of 2011, the management of Simid Sports Co., a manufacturing company, prepared the following estimated balance sheet for December 31, 2011. To prepare a master budget for January, February, and March of 2012, management gather the following information: Simid Sports' single product is purchased for $30 per unit and resold for $55 per unit. The expected inventory level of 2,500 units on December 31, 2011, is more than management's desired level for 2012 which is 20% of the next month's expected sales (in units). Expected sales are: January, 3,500 units; February, 4,500 units; March, 5,500 units; and April, 5,000 units. Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale. For the December 31, 2011, accounts receivable balance, $62,500 is collected in January and the remaining $200,000 is collected in February. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after purchase. For the December 31, 2011, accounts payable balance, $40,000 is paid in January and the remaining $140,000 is paid in February. 1. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $30,000 per year. General and administrative salaries are $72,000 per year. Maintenance expense equals $1,000 per month and is paid in cash. Equipment reported in the December 31, 2011, balance sheet was purchased in January 2011. It is being depreciated over eight years using the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $18,000; February, $48,000; and March, $14,400. This equipment will be depreciated using the straight-line method over eight years with no salvage value. A full month's depreciation is taken for the month in which equipment is purchased. The company plans to acquire land at the end of March at a cost of $75,000, which will be paid for with cash on the last day of the month. Simid Sports has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $12,500 each month. The income tax rate for the company is 40%. Income taxes on the first quarter's income will not be paid until April 15. Prepare a master budget for each of the first three months of 2012, include the following component budgets (show supporting calculations as needed, and round amounts to the nearest dollar): Monthly sales budgets (showing both budgeted unit sales and dollar sales) (template from 7.6) SIMID SPORTS COMPANY SALES BUDGETS JANUARY- MARCH 2012 Budgeted Units January 2012 3,500 February 2012 4,500 March 2012 5,500 Total for the first quarter 13,500 2. Budgeted Unit Price x $55 x $55 x $55 x $55 Budgeted Total Dollars $192,500 $247,500 $302,500 $742,500 Monthly merchandise purchases budgets (template from 7.8) January February March Next month's budgeted sales 4,500 5,500 5,000 Ratio of inventory to future sales x 20% x 20% x 20% Budgeted ending inventory 900 1,100 1,000 Add budgeted sales 3,500 4,500 5,500 Required available merchandise 4,400 5,600 6,500 Deduct beginning inventory -2,500 -900 -1,100 Units to be purchased 1,900 4,700 5,400 Budgeted cost per unit X $30 X $30 X $30 Budgeted merchandise purchases $ 57,000 $141,000 $162,000 3. Monthly selling expense budgets (template from 7.9) January February March Budgeted sales $192,500 $247,500 $302,500 Sales commission % x 20% x 20% x 20% Sales commission expense 38,500 49,500 60,500 Sales salaries 2,500 2,500 2,500 Total selling expenses $41,000 $52,000 $63,000 Total $742,500 x 20 $148,500 7,500 $156,000 4. Monthly general and administrative expense budgets (template from 7.10) January February March Total Salaries $ 6,000 $ 6,000 $ 6,000 $18,000 Depreciation $3,000 $ 3,500 $ 3,650 10,150 Total expenses$9,000 $9,500 $9,650 (Maint 1,000 x months) = $31,150 5. Monthly capital expenditure budgets (New equipment + land purchased in March) January February March Equipment $18,000 $48,000 $14,400 Land 75,000 Total $18,000 $48,000 $89,400 6. Monthly cash budgets (template from 7.14) January February Beginning cash balance 18,000 15,050 Cash receipts from customers 110,625 348,500 Total cash available 128,625 363,550 Cash disbursements Payments for merchandise Sales commissions Sales salaries G&A salaries (72,00012) Maintenance expense Interest on loan Taxes Purchases of equipment Purchase of land Total cash disbursements Preliminary cash balance Repayment of loan to bank Balance 40,000 38,500 2,500 6,000 1,000 75 151,400 49,500 2,500 6,000 1,000 18,000 48,000 March 105,150 244,750 349,900 73,800 60,500 2,500 6,000 1,000 106,075 258,400 45,000 14,400 75,000 278,200 22,550 -7,500 $15,050 105,150 _______ $105,150 71,700 ________ $71,700 7. 8. Budgeted income statement for the entire first quarter (not for each month) (template from 7.15) Sales $742,500 Cost of goods sold 405,000 Gross profit 337,500 Operating expenses Sales commissions $148,500 Sales salaries 7,500 General administrative salaries 18,000 Maintenance expense 3,000 Depreciation expense 10,150 Interest expense 75 187,225 Income before taxes 150,275 Income taxes 60,110 Net income $ 90,165 Budgeted balance sheet as of March 31, 2012. (template from 7.16) Assets Cash Accounts receivable Inventory Total current assets Land Equipment Less accumulated depreciation Total assets Liabilities and equity Accounts payable Taxes payable Total liabilities Common stock Retained earnings stockholders' equity Total liabilities and equity $71,700 301,125 30,000 402,825 75,000 $350,400 43,900 306,500 $784,325 $ 274,800 60,110 334,910 $236,250 213,165 449,415 $784,325