Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
I have to do a flexible budget based on a master budget but I do not know how to do that based on this master
I have to do a flexible budget based on a master budget but I do not know how to do that based on this master budget. How do I make a flexible budget based on a master budget?
Solve the given problem based on the following scenario. | |||||||||||||||||
The managers of Crouch Corp. need you to create the master budget for the months of January, February, and March of 2018. | |||||||||||||||||
Crouch Corp. Estimated Balance Sheet (as of December 31, 2017) | |||||||||||||||||
Assets ($) | |||||||||||||||||
Cash | 32,400 | ||||||||||||||||
Accounts receivable | 472,500 | ||||||||||||||||
Inventory | 135,000 | ||||||||||||||||
Total current assets | 639,900 | ||||||||||||||||
Equipment | 486,000 | ||||||||||||||||
Less accumulated depreciation | (60,750) | ||||||||||||||||
Net equipment | 425,250 | ||||||||||||||||
Total assets | 1,065,150 | ||||||||||||||||
Liabilities and Equity ($) | |||||||||||||||||
Accounts payable | 324,000 | ||||||||||||||||
Bank loan payable | 13,500 | ||||||||||||||||
Taxes payable (due 3/15/2018) | 81,000 | ||||||||||||||||
Total liabilities | 418,500 | ||||||||||||||||
Common stock | 425,250 | ||||||||||||||||
Retained earnings | 221,400 | ||||||||||||||||
Total stockholders' equity | 646,650 | ||||||||||||||||
Total liabilities and equity | 1,065,150 | ||||||||||||||||
Use the following data to prepare the master budget. | |||||||||||||||||
A single product of Crouch Corp. can be purchased for $25 per unit and resold for $50 per unit. | |||||||||||||||||
The anticipated inventory level on December 31, 2017, is 2,500 units. | |||||||||||||||||
This is actually more than its desired level for 2018, which is 20% of January's | |||||||||||||||||
projected sales (in units). Projected sales are: | |||||||||||||||||
5,250 units for January | |||||||||||||||||
6,750 units for February | |||||||||||||||||
8,250 units for March | |||||||||||||||||
7,500 units for April | |||||||||||||||||
The total sales consists of 25% cash sales and 75% credit sales. | |||||||||||||||||
60% of credit sales is collected in the first month after the sale, and 40% is collected | |||||||||||||||||
in the second month after the sale. | |||||||||||||||||
$112,500 of the accounts receivable balance for December 31, 2017, is collected in | |||||||||||||||||
January and $360,000 is collected in February. | |||||||||||||||||
20% of the payment for merchandise purchases is made one month after the | |||||||||||||||||
purchase, and 80% is made in the second month. | |||||||||||||||||
$72,000 of the balance of accounts payable for December 31, 2017, is paid in | |||||||||||||||||
January, and $252,000 is paid in February. | |||||||||||||||||
Salaries for salespersons average $45,000 per year. In addition to this, a sales | |||||||||||||||||
commission equal to 20% of each salesperson's sales is paid on a monthly basis. | |||||||||||||||||
Salaries for general administrative staff average $108,000 per year. | |||||||||||||||||
Each month, $1,500 is paid for maintainance expenses. | |||||||||||||||||
The December 2017 balance sheet reflects an equipment purchase in January 2017. | |||||||||||||||||
Using the straight-line method, depreciation will occur over 8 years, with no | |||||||||||||||||
salvage value. A full month's depreciation is recognized in the month in which the | |||||||||||||||||
asset is purchased. | |||||||||||||||||
The following new equipment purchases are projected for the next quarter: | |||||||||||||||||
$27,000 in January | |||||||||||||||||
$72,000 in February | |||||||||||||||||
$21,600 in March | |||||||||||||||||
The company has negotiated to purchase land for $112,500, which will be paid on | |||||||||||||||||
the last day of March, in cash. | |||||||||||||||||
Crouch Corp. has arranged an agreement with its bank to take additional loans | |||||||||||||||||
as needed. The bank charges 12% interest per year. Crouch Corp. pays interest on the | |||||||||||||||||
monthly beginning balance at the end of each month. The company may make | |||||||||||||||||
full or partial loan payments on the last day of the month. According to this | |||||||||||||||||
agreement with the bank, the minimum ending cash balance each month must | |||||||||||||||||
be $18,750. | |||||||||||||||||
The first quarter's income tax is paid on April 15 at a tax rate of 35%. | |||||||||||||||||
Using the data provided, prepare the master budget for the first quarter of 2018, | |||||||||||||||||
including all the following budgets: | |||||||||||||||||
1. | Monthly sales budgets (showing both budgeted unit sales and dollar sales) | ||||||||||||||||
2. | Monthly merchandise purchases budgets | ||||||||||||||||
3. | Monthly selling expense budgets | ||||||||||||||||
4. | Monthly general and administrative expense budgets | ||||||||||||||||
5. | Monthly capital expenditures budgets | ||||||||||||||||
6. | Monthly cash budgets | ||||||||||||||||
7. | Budgeted income statement for the entire first quarter (not for each month) | ||||||||||||||||
8. | Budgeted balance sheet as of March 31, 2018 | ||||||||||||||||
Note: Round numbers to the nearest dollar and use supporting calculations. | |||||||||||||||||
Crouch Corp. | |||||||||||||||||
Sales Budgets | |||||||||||||||||
January, February, and March 2018 | |||||||||||||||||
Budgeted Units | Budgeted Unit Price | Budgeted Total Dollars | |||||||||||||||
Jan. | 5,250 | $50 | $262,500 | ||||||||||||||
Feb. | 6,750 | $50 | $337,500 | ||||||||||||||
Mar. | 8,250 | $50 | $412,500 | ||||||||||||||
Total | $1,012,500 | ||||||||||||||||
Crouch Corp. | |||||||||||||||||
Merchandise Purchases Budgets | |||||||||||||||||
January, February, and March 2018 | |||||||||||||||||
January | February | March | Total | ||||||||||||||
Next Months budgeted units | 6,750 | 8,250 | 7,500 | 22,500 | |||||||||||||
Ratio of inventory to future sales | 20% | 20% | 20% | 20% | |||||||||||||
Ending inventory | 1,350 | 1,650 | 1,500 | 4,500 | |||||||||||||
Add: budgeted sales | 5,250 | 6,750 | 8,250 | 20,250 | |||||||||||||
Required units of mechandise available | 6,600 | 8,400 | 9,750 | 24,750 | |||||||||||||
Less: beginning inventory | 2,500 | 1,350 | 1,650 | 5,500 | |||||||||||||
Units to be purchased | 4,100 | 7,050 | 8,100 | 19,250 | |||||||||||||
Cost per unit | $25 | $25 | $25 | $25 | |||||||||||||
Cost of merchandise purchase | $102,500 | $176,250 | $202,500 | $481,250 | |||||||||||||
Crouch Corp. | |||||||||||||||||
Selling Expenses Budget | |||||||||||||||||
January, February, and March 2018 | |||||||||||||||||
January | February | March | Total | ||||||||||||||
Budget sales | 262,500 | 337,500 | 412,500 | 1,012,500 | |||||||||||||
Sales commission % | 20% | 20% | 20% | 20% | |||||||||||||
Sales commission | 52,500 | 67,500 | 82,500 | 202,500 | |||||||||||||
Salary for sales manager | 3,750 | 3,750 | 3,750 | 11,250 | |||||||||||||
Total selling expenses | $56,250 | $71,250 | $86,250 | $213,750 | |||||||||||||
Crouch Corp. | |||||||||||||||||
General and Administrative Expenses Budget | |||||||||||||||||
January, February, and March 2018 | |||||||||||||||||
January | February | March | Total | ||||||||||||||
Administrative salaries | $ 9,000 | $ 9,000 | $ 9,000 | $ 27,000 | |||||||||||||
Total general and administrative exepenses | $ 9,000 | $ 9,000 | $ 9,000 | $ 9,000 | |||||||||||||
* Depreciation expense calculations | |||||||||||||||||
Annual Depreciation Expense | January | February | March | Total | |||||||||||||
Equiptment owned | 60,750 | 5,036 | 5,036 | 5,036 | 75,939 | ||||||||||||
Jan. purchases | $ 3,375 | $ 281 | $ 281 | $ 281 | $ 4,218 | ||||||||||||
Feb. purchases | 9,000 | 750 | 750 | $10,500 | |||||||||||||
Mar. purchases | 2,700 | 225 | $2,925 | ||||||||||||||
Total depreciation expenses | $75,825 | $5,344 | $6,094 | $6,319 | $93,582 | ||||||||||||
Crouch Corp. | |||||||||||||||||
Capital Expenditures Budget | |||||||||||||||||
January, February, and March 2018 | |||||||||||||||||
January | February | March | |||||||||||||||
Purchases of equiptment | $27,000 | $72,000 | $21,600 | ||||||||||||||
Purchase of land | $112,500 | ||||||||||||||||
Total capital expenditures | $27,000 | $72,000 | $134,100 | ||||||||||||||
Crouch Corp. | |||||||||||||||||
Cash Budgets | |||||||||||||||||
January, February, and March 2018 | |||||||||||||||||
January | February | March | |||||||||||||||
Beginning cash balance | $ 32,400 | $ 43,140 | $ 179,390 | ||||||||||||||
Add: Cash receipts from sales | 178,125 | 562,500 | 333,750 | ||||||||||||||
Total cash available | 210,525 | 605,640 | 513,140 | ||||||||||||||
Less: Cash payments for | |||||||||||||||||
Merchandise payments | 60,000 | 272,500 | 117,250 | ||||||||||||||
Sales commissions | 52,500 | 67,500 | 82,500 | ||||||||||||||
Sales salaries | 3,750 | 3,750 | 3,750 | ||||||||||||||
Administrative salaries | 9,000 | 9,000 | 9,000 | ||||||||||||||
Maintenance | 1,500 | 1,500 | 1,500 | ||||||||||||||
Interest on loan | 135 | ||||||||||||||||
Income taxes | 81,000 | ||||||||||||||||
Purchase of equiptment | 27,000 | 72,000 | 21,600 | ||||||||||||||
Purchase of land | 112,500 | ||||||||||||||||
Total cash payments | 153,885 | 426,250 | 429,100 | ||||||||||||||
Cash balance | 56,640 | 179,390 | 84,040 | ||||||||||||||
Loan payment | 13,500 | ||||||||||||||||
Ending cash balance | $43,140 | $179,390 | $84,040 | ||||||||||||||
Supporting calculations | January | February | March | Total | |||||||||||||
Note A: Cash receipts from customers | |||||||||||||||||
Sales | $ 262,500 | $ 337,500 | $ 412,500 | $1,012,500 | |||||||||||||
Cash receipts from | |||||||||||||||||
Cash sales 25% | 65,625 | 84,375 | 103,125 | $253,125 | |||||||||||||
Accounts receivable | 112,500 | 360,000 | |||||||||||||||
Credit sales after 1st month 60% | 118,125 | 151,875 | 270,000 | ||||||||||||||
Credit sales after 2nd month 40% | 78,500 | 78,750 | |||||||||||||||
Total Cash received | $178,125 | $562,500 | $333,500 | $1,074,125 | |||||||||||||
Note B: Cash payments for merchandise | |||||||||||||||||
Credit purchases | $ 102,500 | $ 176,250 | $ 202,500 | $481,250 | |||||||||||||
Accounts payable | $ 72,000 | $ 252,000 | $324,000 | ||||||||||||||
1st month after 20% | 20,500 | 35,250 | $55,750 | ||||||||||||||
2nd month after 80% | 82,000 | $82,000 | |||||||||||||||
Total paid on merchandise purchases | $60,000 | $ 272,500 | $ 117,250 | $ 449,750 | |||||||||||||
Crouch Corp. | |||||||||||||||||
Budgeted Income Statement | |||||||||||||||||
For Three Months Ended March 2018 | |||||||||||||||||
Sales | $1,012,500 | ||||||||||||||||
Cost of goods sold | 506,250 | ||||||||||||||||
Gross profit | $506,250 | ||||||||||||||||
Selling, general, and admin. Expenses | |||||||||||||||||
Sales commissions | $ 202,500 | ||||||||||||||||
Sales salaries | 11,250 | ||||||||||||||||
Admin salaries | 27,000 | ||||||||||||||||
Maintenance expense | 4,500 | ||||||||||||||||
Depreciation | 15,075 | ||||||||||||||||
Interest expense | 188 | 260,513 | |||||||||||||||
Income before taxes | 245,737 | ||||||||||||||||
Income tax expense | 86,008 | ||||||||||||||||
Net income | $159,729 | ||||||||||||||||
Crouch Corp. | |||||||||||||||||
Budgeted Balance Sheet | |||||||||||||||||
March 31, 2018 | |||||||||||||||||
Assets | |||||||||||||||||
Cash | $ 84,040 | ||||||||||||||||
Accounts recievable | 401,250 | ||||||||||||||||
Inventory | 37,500 | ||||||||||||||||
Total current assets | $522,790 | ||||||||||||||||
Equiptment | 425,250 | ||||||||||||||||
Less:accumulated depreciation | $ 71,497 | 15,075 | |||||||||||||||
New equiptment | 120,600 | ||||||||||||||||
Land | 112,500 | ||||||||||||||||
Total assets | $1,252,637 | ||||||||||||||||
Liabilities and Equity | |||||||||||||||||
Accounts payable | $ 360,250 | ||||||||||||||||
Income taxes payable | $ 86,008 | ||||||||||||||||
Bank loan payable | $13,500 | ||||||||||||||||
Total liabilities | 446,258 | ||||||||||||||||
Common stock | 425,250 | ||||||||||||||||
Retained earnings | 381,129 | ||||||||||||||||
Total liabilities and equity | $1,252,637 | ||||||||||||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started