Master Budget Case Project
CHECK FIGURES
(2a) February purchases: $64,680
(2b) February cash disbursements for purchases: $59,160
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 companys balance sheet showed the following account balances:
	Cash			$6,800
	Accounts receivable			$36,200
	Inventory			$11,000
	Buildings and equipment (net)		$127,000
	Accounts payable				$32,100
	Common stock				$93,500
	Retained earnings				$55,400
				$181,000	$181,000
b.	Actual and budgeted sales are as follows:
	December (actual)	$56,800
	January	$74,400
	February	$92,800
	March	$91,200
	April	$52,000
c.	Sales are 30% for cash and 70% 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 companys gross margin percentage is 30% of sales. (In other words, cost of goods sold is 70% of sales.)
e.	Each months ending inventory should equal 25% of the following month's budgeted cost of goods sold.
f.	One-quarter of a months 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, 15% of sales; rent, $2,550; other expenses (excluding depreciation), 10% of sales. Assume that these expenses are paid monthly. Depreciation is $2,700 for the quarter and includes depreciation on new assets acquired during the quarter.
h.	Equipment will be acquired for cash: $4,150 in January and $8,150 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	$22,320
	Credit sales	$36,200
	Total collections	$58,520
2a.	Merchandise purchases budget:
		January		February	March	Total
	Budgeted cost of goods	$52,080	*	$64,960
	Add desired ending inventory	$16,240
	Total needs	$68,320
	Less beginning inventory	$11,000
	Required purchases	$57,320
	*$74,400 sales 70% = $52,080
	$92,800 70% 25% = $16,240
2b.	Schedule of expected cash disbursements for merchandise purchases:
		January		February	March	Total
	December purchases	$32,100	*			$32,100
	January purchases	$14,330		$42,990		$57,320
	February purchases	$0
	March purchases	$0
	Total cash disbursements for purchases	$46,430
	*Beginning balance of the accounts payable.
3.	Schedule of expected cash disbursements for selling and administrative expenses:
		January		February	March	Total
	Commissions	$11,160
	Rent	$2,550
	Other expenses	$7,440
	Total cash disbursements for selling and administrative expenses	$21,150
4.	Cash budget:
		January		February	March	Total
	Cash balance, beginning	$6,800
	Add cash collections	$58,520
	Total cash available	$65,320
	Less cash disbursements:
	For inventory	$46,430
	For operating expenses	$21,150
	For equipment	$4,150
	Total cash disbursements	$71,730
	Excess (deficiency) of cash	($6,410)
	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.