MASTER BUDGET ASSIGNMENT

FALL 2020

You have just been hired as a controller for Intermediate, Inc., a distributor of necklaces to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of necklaces, but all are sold for the same price$16 each. Actual sales of necklaces for the last three months and budgeted sales for the next six months follow in units of necklaces:

January (actual)	23,400	June (budget)	53,400
February (actual)	29,400	July (budget)	33,400
March (actual)	43,400	August (budget)	31,400
April (budget)	68,400	September (budget)	28,400
May (budget)	103,400

The concentration of sales before and during May is due to Mothers Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the necklaces sold in the following month.

Suppliers are paid $5.7 for each necklace. One-half of a months purchases is 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. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable:
Sales commissions		4%	of sales
Fixed:
Advertising	$	370,000
Rent	$	35,000
Salaries	$	140,000
Utilities	$	15,500
Insurance	$	4,700
Depreciation	$	31,000

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $24,500 in new equipment during May and $57,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $27,750 each quarter, payable in the first month of the following quarter.

A listing of the companys ledger accounts as of March 31 is given below:

Assets
Cash	$	91,000
Accounts receivable ($47,040 ) February sales; $555,520 March sales)		602,560
Inventory		155,952
Prepaid insurance		29,500
Property and equipment (net)		1,120,000
Total assets	$	1,999,012
Liabilities and Stockholders Equity
Accounts payable	$	117,000
Dividends payable		27,750
Common stock		1,140,000
Retained earnings		714,262
Total liabilities and stockholders equity	$	1,999,012

The company maintains a minimum cash balance of $67,000. 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% 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 $67,000 in cash.

Required:

1. Calculate a sales budget for the second quarter (monthly and in total).
2. Calculate a Purchases budget (monthly and in total).
3. Calculate a direct labor budget. (monthly and in total).
4. Create a cash receipts budget (monthly and in total).
5. Create a cash disbursements budget. (monthly and in total).
6. Create an overall cash budget. (monthly and in total).
7. Create a budgeted income statement. (One for the quarter)
8. Balance Sheet Bonus Points (at end of quarter)