Part I [Complete]

Premier plans to purchase land for $25,000 cash in June. The company also declares dividends of $12,000 per quarter. The dividend is declared in the last month of the quarter and paid in the first month of the following quarter.

At the end of each quarter, Premier makes a tax payment equal to 20% of budgeted income before tax. For purposes of this project, you may assume that the payment is debited to income tax expense.

At the beginning of the year, Premier borrowed $150,000 on a five-year 12% note payable with interest to be paid annually at December 31.

The divisions balance sheet at March 31 is as follows:

PREMIER TIES

BALANCE SHEET

At March 31

ASSETS

Cash $ 44,000

Accounts receivable 229,500

Inventory 157,500

Prepaid insurance 14,400

Property, plant and equipment, net 322,700

Total Assets $768,100

LIABILITIES AND STOCKHOLDERS EQUITY

Accounts payable $ 85,750

Dividends payable 12,000

Interest payable 4,500

Note payable 150,000

Common stock, no par 300,000

Retained earnings 215,850

Total Liabilities and Stockholders Equity $768,100

REQUIREMENTS

PART 2

Prepare a budgeted income statement for the quarter only using the contribution format. List each cost separately.

At the bottom of your worksheet, answer the questions below. Use operating income (income before interest and taxes) in your calculations. Round your answers to the nearest whole unit, dollar or one percent as necessary. Be sure to label your answers.

A. What is the division contribution margin ratio?

B. What is the quarterly budgeted break-even point in units?

C. What is the margin of safety in units for the quarter?

D. What is operating leverage for the quarter?

E. If the division wants to earn income before interest and taxes of $350,000 for the quarter, how many units must it sell?

PART 3

Prepare a cash budget by month and for the quarter, listing each category of payment separately. (HINT: Ending cash balance at April 30 should be

$24,125.)

PART 4

The balance sheet information provided in the project data has been entered on a spreadsheet in your workbook. Prepare a comparative budgeted balance sheet at June 30 next to the first quarter balance sheet. If you cannot get your second quarter balance sheet to balance, enter the amount necessary to get it to balance as a separate line item and label this amount plug.

At the bottom of your worksheet, answer the questions below. Round your answers to the nearest whole unit, dollar or one percent as necessary.

A. What is the budgeted ROI for the quarter?

B. If Menswear, International has established a minimum required rate of return of 18% for all divisions, what is budgeted residual income for the quarter?

C. If the division vice president has set a target ROI of 25% for the division, how many units will the company have to sell for the quarter?