Managerial Accounting A Classic Budget Problem Prepare master budget. ompany wants a master budget for the next three months, beginning January 1, 2016. It desires an ing minimum cash balance of $4,000 each month. Sales are forecasted at average selling prices of $4 per unit. Inventories are supposed to equal 125 percent of the next month's sales March 31 in Purc in units, except for the end of March. The ventory in units should be 75 percent of the next month's sales. Merchandise costs are $2 per unit. hases during any given month are paid in full during the following month. All sales are on credit, payable within irty days, but experience has shown that 40 percent of current sales are collected in the current month, 40 percent in the next month, and 20 percent in the month thereafter. Bad debts are negligible. Monthly operating expenses are as follows: Wages and salaries Insurance expired Depreciation Miscellaneous Rent $12,000 100 200 2,000 100 + 1 0% of sales Cash dividends of $1,000 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $100 is paid at the beginning of each month, and the additional 10 percent of sales is paid quarterly on the tenth of the month following the quarter. The next settlement is due January 10 The company plans to buy some new fixtures, for $2,000 cash, in March. Money can be borrowed or repaid in multiples of $500, at an interest rate of 6 percent per annum. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing takes place at the beginning, and repayments at the end, of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar. Assets as of December 31: Liabilities and Equities as of December 31: $4,000 16,000 Accounts payable Cash Accounts receivable Inventory Prepaid insurance Fixed assets, net (merchandise) Dividends payable 31,250 1,200 10,000 $28,750 1,000 7,000 $36,750 Rent payable $62,450 Common Stock $10,000 Retained Earnings 15.700 25.700 Sales (Actual and estimated) October $30,000 December $20,000 February $60,000 April $36,000 November S20,000 January $50,000 March $30,000 equired Prepare a master budget, including a budgeted income statement, balance sheet, statement of cash receipts and other schedules that support the preparation of your budget. Explain why there is a need for a bank loan and explain what sources provide the cash for the repayment of the bank loarn