Prepare a sales budget for January through March and for the Quarter in total. The selling price per unit is $60.00.

Budgeted sales in units :

December of Previous year 80,000

January 90,000

February 10,000

March 30,000

April 70,000

2. Prepare a purchases budget and the schedule for Disbursements for Purchases for January through March and for the first quarter in total. Assume that the company only sells one product that can be purchased at $45.00 per unit. The market for this product is very competitive and customers highly value quality and on time delivery of the product. Also assume that currently it is company policy that ending inventory should equal 50% of next months projected sales.

3. Prepare a cash budget for January through March and for the first quarter in total. The company maintains a minimum cash balance of $80,000.00, and this was the ending cash balance in the cash account on December 31.

Additional Data:

• Past experience shows that 40% of sales are collected in the month of the sale, and 60% in the month following the sale.
• Other expenses include $65,000 per month for rent, $204,000 for advertising, and $76,000 per month for depreciation.
• All costs are paid in the current month except inventory purchases, which are paid in the month following the purchase (i.e. January purchases of inventory are paid in February).
• The company has an open line of credit with a bank and can borrow at an annual rate of 12%. For simplification assume that all loans are made at the beginning of the month when a borrowing need is identified and repayments are made at the end of a month when the company has excess cash(i.e. this company does not take out additional loans to pay current loans.)
• Also, interest associated with a loan is only paid at the time when that loan is paid (i.e. a loan is only paid if there is enough cash to pay off the whole loan, any interest associated with it, and the company still has enough cash left over to meet its requirement for the minimum cash balance.) Interest expense if it exist, however, should be reported even when it has not been paid off (please note this instruction is different from what was discussed in the video so take note).

4. Prepare the Budgeted Income Statement based on all the information given above.

Label the budgets prepared in Steps 1-4 as budget scenario A.

5. Repeat steps 2-4 for budget scenarios B and C using the following Desired Ending Inventory assumptions:

	Ending Inventory
B.	90%
C.	10%