Master Budget You need to prepare a Master Budget for the ABC Co.. The company has an exclusive right to sell Super Dots and sales have been brisk. The Master Budget will be for the next three months starting April 1. The following information is available related to the budget. The company needs to maintain a minimum cash balance at the end of every month in the amount of $15,000. The Dots are forecasted to sell at $44 each. Recent actual and projected sales (in units) are as follows Actual Jan 67,000 Feb 80,000 Mar 94,000 Projected Apr 117,000 May 151,000 Jun 201,000 Projected Jul 134,000 121,000 Sep 107,000 Aug In order to meet the product demand, the company has established a policy requiring that ending inventory for each month must be equal to 90% of the units expected to sold in the next month. The cost to purchase each unit of product is $26. Purchases are typically paid for as follows: 50% paid in the month of purchase, and the remaining 50% paid in the month after purchase. All sales are on credit, with no discount, and payable within 15 days. The company's collections on account usually are 25% in the month of sale, 50% in the month immediately after the sale, and 25% in the second month after sale. The company has a very rigorous credit policy and there are virtually no bad debts. The company's operating expenses are shown below: Variable: Sales Commissions $4 per unit Fixed: Wages Utilities Insurance expired Depreciation Miscellaneous $54,000 1,900 1,800 2,300 3,000 All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. New fixed assets will be purchased during May for $30,000. The company declares dividends of $16,000 each quarter, payable in the first month of the following quarter. ABC Co.'s Balance Sheet at March 31 is as follows. ASSETS Cash $ 16,000 Accounts receivable* 3,982,000 Inventory (105300 units)** 2,737,800 Unexpired insurance 21,600 Fixed assets (net of depreciation) 193,600 Total Assets $6,951,000 LIABILITIES AND EQUITY Accounts payable (purchases) Dividends payable Capital stock, (no par) Retained Earnings Total Liabilities & Equity $1,491,100 16,000 400,000 5,043,900 $6,951,000 *Accounts receivable consists of $880,000 from February sales and $3,102,000 from March Sales. Use these numbers for both scenarios. ** Use this same March ending inventory number for both scenarios. The company has a good relationship with its bank and can borrow money at a 10% annual rate at any time and in any amount. All borrowing and repayments must be made at the end of the month. When the company is ready to make a payment, all unpaid interest must be paid first. After the unpaid interest is paid, then principal can be repaid as long as the minimum cash balance is maintained. ABC Co. Required: You will complete all tasks listed below for the original facts above...this will be Scenario 1. Then you will repeat the entire process for Scenario 2. This second scenario will show what would happen if there was an increase of 20% (twenty percent) in the number of units sold. This is essentially a flexible budget. SCENARIO 1 Prepare a Master Budget for the three month period ending June 30th. Include the following detailed budgets: 1. a. A sales budget by month and in total. b. A schedule of budgeted cash collections from sales and accounts receivable by month and in total. c. A purchases budget in units and dollars by month and in total. d. A schedule of budgeted cash payments for purchases by month and in total. 2. A cash budget by month and in total. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution margin approach. 4. A budgeted balance sheet as of June 30. 5. Calculate the Contribution Margin and Break-Even amounts (for the three month period) based on your assumptions about variable and fixed costs. SCENARIO 2 Repeat all the steps (1-5) shown above assuming that the number of units expected to be sold increase by 20%. The months January to March have already occurred so those will be the same for both Scenarios. Please pay attention to the information above when it says: * Accounts receivable consists of $880,000 from February sales and $3,102,000 from March Sales. Use these numbers for both scenarios. ** Use this same March ending inventory number for both scenarios. Budgeted Ending Inventory for June is based on July sales. Therefore you will need to increase the expected July sales in Scenario 2 and this will mean June Ending Inventory will be different in Scenario 2. Here are some check figures to check your final work. If you agree with these check numbers it is an important confirmation, although it is not guarantee that everything is correct. Amounts for the quarter: Scenario 1 Scenario 2 Sales budget $20,636,000 $24,763,200 Budgeted cash collections $16,324,000 $18,792,400 Budgeted purchases $12,591,800 $15,657,720 Budgeted cash payments-purchases $12,253,800 $14,953,900 Ending Cash Balance $1,987,500 $1,374,327 Inc Stmt Interest Expense $0 $6,273 Inc Stmt Net income $6,377,000 $7,683,927 Bal Sheet AR $8,294,000 $9,952,800 Bal Sheet Inventory $3,135,600 $3,762,720 Bal Sheet AP $1,829,100 $2,194,920 Bal Sheet Retained Earnings (RE) $11,404,900 $12,711,827 Bal Sheet Total Assets (=Liab+OE) $13,650,000 $15,322,747 *MEMO: interest expense calculation: MEMO: To help you calculate interest and round the amount to the nearest dollar, formulas are provided in the yellow cells. ENTER AMOUNTS FROM CASH BUDGET HERE (if any) CHANGE YOUR RATE HERE if different 10.00% 0 Interest expense on amount borrowed in 2nd month: total amount borrowed in 2nd month rate per year interest for 12 months $ number of months in a year interest for 1 month $ months outstanding total interest expense for this amount 12 0 1 0 0 MEMO: note rounding formula in the column G formula ENTER AMOUNTS FROM CASH BUDGET HERE (if any) CHANGE YOUR RATE HERE if different Interest expense on amount borrowed in 1st month: total amount borrowed in 1st month rate per year interest for 12 months $ number of months in a year interest for 1 month $ months outstanding total interest expense for this amount total interest expense for both amounts 10.00% 0 12 0 2 0 MEMO: note rounding formula in the column G formula 0 0 SCENARIO 1 Name of your Company Budgeted Balance Sheet June 30, 202x per unit Cash AR Inventory units at $ Unexpired insurance Fixed assets, net Total Assets Liabilities & Equity AP Interest Payable Dividends payable Notes payable-bank Capital Stock, no-par Retained Earnings Total Liabilities & Equity MEMO: Balance Sheet detail: Accounts Receivable (AR) May Sales June Sales 0 1 AR Beginning +Sales -Collections AR Ending Retained Earnings (RE) Beg RE Net income Less Dividends declared Contribution Margin and BEP Unit Sales price Unit Purchase price Unit Sales Commissions Unit Contribution Margin Fixed Costs for three month period Wages Utilities Insurance expired Depreciation Miscellaneous Total Fixed Costs Break Even Point: Fixed Costs/Unit CM Fixed Costs/CM% BEP units BEP dollars