Master Budget Case Project

CHECK FIGURES

$(2$a$)$ February purchases: $$66,500$

$(2$b$)$ February cash disbursements for purchases: $$61,115$

Franchesca Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter.

a$.$ As of December $31($the end of the prior quarter$),$ the company$$s balance sheet showed the following account balances:

Cash $$7,200$

Accounts receivable $$38,500$

Inventory $$11,100$

Buildings and equipment $($net$)$ $$126,700$

Accounts payable $$35,900$

Common stock $$102,300$

Retained earnings $$45,300$

$$183,500$ $$183,500$

b$.$ Actual and budgeted sales are as follows:

December $($actual$)$ $$57,600$

January $$76,800$

February $$95,200$

March $$94,400$

April $$59,200$

c$.$ Sales are $40\%$ for cash and $60\%$ on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at December $31$ are a result of December credit sales.

d$.$ The company$$s gross margin percentage is $30\%$ of sales. $($In other words, cost of goods sold is $70\%$ of sales.$)$

e$.$ Each month$$s ending inventory should equal $25\%$ of the following month's budgeted cost of goods sold.

f$.$ One$-$quarter of a month$$s inventory purchases is paid for in the month of purchase; the other three$-$quarters is paid for in the following month. The accounts payable at December $31$ are the result of December purchases of inventory.

g$.$ Monthly expenses are as follows: commissions, $12\mathrm{.}5\%$ of sales; rent, $$2,650$; other expenses $($excluding depreciation$),9\%$ of sales. Assume that these expenses are paid monthly. Depreciation is $$2,600$ for the quarter and includes depreciation on new assets acquired during the quarter.

h$.$ Equipment will be acquired for cash: $$4,050$ in January and $$8,750$ in February.

i$.$ Management would like to maintain a minimum cash balance of $$5,000$ at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $$1,000$ at the beginning of each month, up to a total loan balance of $$50,000.$ The interest rate on these loans is $1\%$ per month, and for simplicity, we will assume that interest is not compounded. Accumulated interest on any amounts borrowed must be paid at the end of the quarter. Also, to the extent it is able $($i$.$e$.,$ while maintaining the minimum cash requirement$),$ the company must repay any outstanding loans at the end of the quarter.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

$1.$ Schedule of expected cash collections:

January February March Total

Cash sales $$30,720$

Credit sales $$38,500$

Total collections $$69,220$

$2$a$.$ Merchandise purchases budget:

January February March Total

Budgeted cost of goods $$53,760*$ $$66,640$

Add desired ending inventory $$16,660$

Total needs $$70,420$

Less beginning inventory $$11,100$

Required purchases $$59,320$

$*$$$76,800$ sales $\backslash$times $70\%=$ $$53,760$

$$$$95,200\backslash$times $70\%\backslash$times $25\%=$ $$16,660$

$2$b$.$ Schedule of expected cash disbursements for merchandise purchases:

January February March Total

December purchases $$35,900*$ $$35,900$

January purchases $$14,830$ $$44,490$ $$59,320$

February purchases $$0$

March purchases $$0$

Total cash disbursements for purchases $$50,730$

$*$Beginning balance of the accounts payable.

$3.$ Schedule of expected cash disbursements for selling and administrative expenses:

January February March Total

Commissions $$9,600$

Rent $$2,650$

Other expenses $$6,912$

Total cash disbursements for selling and administrative expenses $$19,162$

$4.$ Cash budget:

January February March Total

Cash balance, beginning $$7,200$

Add cash collections $$69,220$

Total cash available $$76,420$

Less cash disbursements:

For inventory $$50,730$

For operating expenses $$19,162$

For equipment $$4,050$

Total cash disbursements $$73,942$

Excess $($deficiency$)$ of cash $$2,478$

Financing

Etc.

$5.$ Prepare an absorption costing income statement for the quarter ending March $31$ as shown in Schedule $9$ in the chapter.

$6.$ Prepare a balance sheet as of March $31.$