MASTER BUDGET ASSIGNMENT 20% IN THE FINAL

The following data relate to the operations of Soper Company, a wholesale distributor of consumer goods:

Current assets as of March 31:

Cash

$8,000

Accounts receivable

$ 20,000

Inventory

$ 36,000

Building and equipment, net

$120,000

Accounts payable

$ 21,750

Common shares

$150,000

Retained earnings

$ 12,250

1. The gross margin is 25% of sales.
2. Actual and budgeted sales data:

March (actual)

$50,000

April

$60,000

May

$72,000

June

$90,000

July

$48,000

1. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

1. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold.

1. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

1. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets).

1. Equipment costing $1,500 will be purchased for cash in April.

1. The company must maintain a minimum cash balance of $4,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month; borrowing must be in multiples of $1,000. The annual interest rate is 12%. Interest is paid only at the time of repayment of principal; calculate interest on whole months (1/12, 2/12, and so forth).

Required:

Using the preceding data:

1. Complete the following:

Schedule of Expected Cash Collections

April

May

June

Quarter

Cash sales

$36,000

Credit sales*

20,000

Total collections

$56,000

*40% of prior month's sales

1. Complete the following:

Merchandise Purchases Budget

April

May

June

Quarter

Budgeted cost of goods sold

$45,000*

$54,000

Add desired ending inventory

43,200

Total needs

88,200

Less beginning inventory

36,000

Required purchases

$52,200

*For April sales: $60,000 sales 75% cost ratio = $45,000.

$54,000 80% = $43,200

Schedule of Expected Cash DisbursementsMerchandise Purchases

April

May

June

Quarter

March purchases

$21,750

$21,750

April purchases

26,100

$26,100

52,200

May purchases

June purchases

Total disbursements

$47,850