Master Budget Case Project

CHECK FIGURES

(2a) February purchases: $66,472

(2b) February cash disbursements for purchases: $64,192

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

$6,200

Accounts receivable

$39,900

Inventory

$12,000

Buildings and equipment (net)

$129,700

Accounts payable

$30,800

Common stock

$93,900

Retained earnings

$63,100

$187,800

$187,800

b.

Actual and budgeted sales are as follows:

December (actual)

$66,400

January

$79,200

February

$95,200

March

$94,400

April

$58,400

c.

Sales are 20% for cash and 80% 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 30% 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, 12.5% of sales; rent, $2,800; other expenses (excluding depreciation), 7% of sales. Assume that these expenses are paid monthly. Depreciation is $2,800 for the quarter and includes depreciation on new assets acquired during the quarter.

h.

Equipment will be acquired for cash: $3,950 in January and $8,000 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

$15,840

Credit sales

$39,900

Total collections

$55,740

2a.

Merchandise purchases budget:

January

February

March

Total

Budgeted cost of goods

$55,440

*

$66,640

Add desired ending inventory

$19,992

Total needs

$75,432

Less beginning inventory

$12,000

Required purchases

$63,432

*$79,200 sales 70% = $55,440

$95,200 70% 30% = $19,992

2b.

Schedule of expected cash disbursements for merchandise purchases:

January

February

March

Total

December purchases

$30,800

*

$30,800

January purchases

$15,858

$47,574

$63,432

February purchases

$0

March purchases

$0

Total cash disbursements for purchases

$46,658

*Beginning balance of the accounts payable.

3.

Schedule of expected cash disbursements for selling and administrative expenses:

January

February

March

Total

Commissions

$9,900

Rent

$2,800

Other expenses

$5,544

Total cash disbursements for selling and administrative expenses

$18,244

4.

Cash budget:

January

February

March

Total

Cash balance, beginning

$6,200

Add cash collections

$55,740

Total cash available

$61,940

Less cash disbursements:

For inventory

$46,658

For operating expenses

$18,244

For equipment

$3,950

Total cash disbursements

$68,852

Excess (deficiency) of cash

($6,912)

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. Can you please show formulas as well.