PLEASE RESOLVE: 1)SALES BUDGET 2)CASH RECEIPT BUDGET 3)PURCHASES BUDGET 4)CASH DISBURSEMENTS BUDGET
"We really need to get this new material-handling equipment in operation after the new year begins.
I hope we can finance it largely with cash and marketable securities but if necessary we can get a short-
term loan down at MetroBank." This statement by Beth Davis-lowry, president of Global Electronics
Company, concluded a meeting she had called with the firm's top management. Global is a small, rapidly
growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen
appliances and power tools. Marcia Wilcox, Global Electronics' general manager of marketing, has
recently completed a sales forecast. She believes the company's sales during the first quarter of 20x1 will
increase by 10 percent each month over the previous month's sales. Then Wilcox expects sales to remain
constant for several months. Global's projected balance sheet as of December 21, 20xo is as follows:
Cash					70,000
Accounts receivable					540,000
Marketable securities					30,000
Inventory					308,000
Building an equipment (net of accumulated appreciation)					1,252,000
Total assets					2,200,000
Accounts payable					352,800
Bond interest payable					25,000
Property taxes payable					7,200
Bonds payable (10%; due in 20x6)					600,000
Common stock					1,000,000
Retained earnings					215,000
					2,200,000
Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of
20x1. In the process, the following information has been accumulated:
1) Projected sales for December 20x0 are $800,000. Credit sales typically are 75 percent of total
sales. Global's credit experience indicates that 10 percent of the credit sales are collected during
the month of sale, and the remainder are collected during the following month.
2) Global Electronics' cost of goods sold generally runs at 70 percent of sales. Inventory is purchased
on account, and 40 percent of each month's purchases are paid during the month of purchase.
The remainder is paid during the following month. In order to have adequate stocks of inventory
on hand, the firm attempts to have inventory at the end of each month equal to half of the next
month's projected cost of goods sold.
3) Hanson has estimated that Global's monthly expenses will be as follows:
Salaries					42,000
Advertising and promotion					32,000
Administrative salaries					42,000
Depreciation					50,000
Interest on bonds					5,000
Property taxes					1,800
In addition, sales commissions run at a rate of 1 percent of sales.
4) Global Electronics' president, Davies-Lowrdy, has indicated that the firm should invest $250,000
in an automated inventory-handling system to control the mvement of inventory in the firm's
warehouse just after the new year begins. These equipment purchases will be financed primarily
from the firm's cash and marketable securities. However,Davies-Lowry believes that the company
needs to keep a minimum cas balance of $50,000. If necessary, the remainder of the equipment
purchases will be financed using short-term credit from a local bank. The minimum period for
such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at
the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be
paid off by the end of the first quarter if possible.
5) Global Electroncs' board of directors has indicated an intention to decleare and pay dividends of
$100,000 on the last day of each quarter.
6) The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Global
Electronics' bonds is paid semiannually on January 31 and July 31 for the preceding six-month
period.
7) Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month
period.
Required: Prepare Global Electronics Company's master budget for the first quarter of 20x1 by
completing the follwing schedules and statements:
1) SALES BUDGET:
			20x0		20x1
			December		January	February	March	1st Quarte
Total sales
Cash sales
Sales on account
2) CASH RECEIPTS BUDGET					20x1
					January	February	March	1st Quarte
Cash sales
Cash collections from credit sales
made during current month
Cash collections from credit sales
made during preceding month
Total cash receipts
3) PURCHASES BUDGET
			20x0		20x1
			December		January	February	March	1st Quarte
Budgeted cost of goods sold
Add: Desired endin inventory
Total goods needed
Less: Expected beginning inventory
Purchases
4) CASH DISBURSEMENTS BUDGET
					20x1
					January	February	March	1st Quarte
Inventory purchases:
Cash payment for purchases during the current month
(40% of the current month's purchases on schedule 3)
Cash payment for purchases during the preceding month
(60% of the prior month's purchases on schedule 3)
Total cash payment for inventory purchases
Other expenses:
Sales salaries
Advertising and promotion
Administrative salaries
Interest on bonds
(Paid every six months on January 31 and July 31)
Property taxes
(Paid every six months on February 28 and August 31)
Sales commissions
Total cash payments for other expenses
Total cash disbursements