Question
I need help preparing budgets for the three-month period (quarter) ending December 31. While including the following detailed budgets: 1 . a. A sales budget
I need help preparing budgets for the three-month period (quarter) ending December 31. While including the following detailed budgets:
1. a. A sales budget for October, November, December and this quarter.
b. A schedule of expected cash collections from sales for October, November December and for this quarter.
c. A merchandise purchases budget in units and in dollars for October, November and December and for this quarter.
d. A schedule of expected cash disbursements for merchandise purchases for October, November, December and this quarter.
2. A cash budget for October, November, December and for this quarter. I also need to determine any borrowings that would be needed
to maintain the minimum cash balance of $50,000.
Williams Company sells womens hats for $12 each. Actual and budgeted sales in units for nine months are as follows:
July (actual) .25,000 December (budget) . 50,000 August (actual) 26,000 January (budget) . 30,000 September (actual) 40,000 February (budget) .. 28,000 October (budget) 65,000 March (budget) 25,000 November (budget) 100,000 |
The company should have sufficient inventory on hand at the end of each month to supply 40% of the hats sold in the following month.
Suppliers are paid $4.50 each for a hat. One half of a months purchases are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a months sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale.
Monthly operating expenses for the company are given below: Expenses are paid in the month incurred.
Variable: Sales commission.. 4% of sales Fixed: Advertising $190,000 Rent 22,000 Salaries.. 106,000 Utilities.. 9,000 Insurance 5,000 Depreciation.. 15,000 |
Additional information:
a. In October the company will pay $53,750 for restructuring costs.
b. Insurance is paid on an annual basis, in April of each year.
c. The company plans to purchase investments for $161,250 cash in November.
d. The company will purchase for cash $40,000 in new equipment during December.
e. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.
f. The company plan to collect $50,000 from common stock issued in November.
A listing of the companys ledger accounts as of September 30, is given below:
Assets Cash $74,000 Accounts Receivable ($31,200 August Sales; $384,000 September sales) 415,200 Inventory 104,000 Prepaid Insurance .. 30,000 Property and equipment (net) 871,800 Total assets. $1,495,000
Liabilities and Stockholders Equity Accounts payable $112,500 Dividends payable.. 15,000 Common Stock. 800,000 Retained earnings 567,500 Total liabilities and stockholders equity $1,495,000
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The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.
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. The interest rate on these loans is 1.5% 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 $50,000 in cash.
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