PROBLEM 1 Completing a Master Budget

The following data relate to the operations of Blais Corporation, a wholesale distributor of consumer goods:

Current assets as of December 31:

Cash............................ $6,000

Accounts receivable............... $36,000

Inventory........................ $9,800

Buildings and equipment, net ......... $110,885

Accounts payable .................. $32,550

Common shares.................... $100,000

Retained earnings .................. $30,135

a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)

b. Actual and budgeted sales data are as follows:

December (actual) ...... $60,000

January .............. $70,000

February.............. $80,000

March................ $85,000

April ................. $55,000

c. Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.

d. Each month's ending inventory should equal 20% of the following month's budgeted cost of goods sold.

e. One-quarter of a month's 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.

f. Monthly expenses are as follows: commissions, $12,000; rent, $1,800; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,400 for the quarter and includes depreciation on new assets acquired during the quarter.

g. Equipment will be acquired for cash: $3,000 in January and $8,000 in February.

h. 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. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above:

1. Complete the following schedule:

Schedule of Expected Cash Collections

January February March Quarter

Cash sales $28,000

Credit sales 36,000

Total collections $64,000

2. Complete the following:

Merchandise Purchasing Budget

January February March Quarter

Budgeted cost of goods sold $49,000*

Add desired ending inventory 11,200**

Total needs $60,200

Less beginning inventory 9,800

Required purchases $50,400

* $70,000 sales X 70% - $49,000.

** $80,000 X 70% X 20% - $11,200.

Schedule of Expected Cash Disbursements - Merchandise Purchases

January February March Quarter

December purchases $32,550* $32,550

January purchases 12,600 $37,800 50,400

February purchases

March purchases

Total disbursements $45,150 * Beginning balance of the accounts payable

3. Complete the following schedule:

Schedule of Expected Cash Disbursements

Selling and Administrative Expenses

January February March Quarter

Commissions................. $12,000

Rent ......................... 1,800

Other expenses ................ 5,600

Total disbursements ............ $19,400

4. Complete the following cash budget:

January February March Quarter

Cash balance, beginning ......... $ 6,000

Add cash collections ............ 64,000

Total cash available ............. 70,000

Less cash disbursements:

For inventory ................ 45,150

For operating expenses ........ 19,400

For equipment ............... 3,000

Total cash disbursements ........ 67,550

Excess (deficiency) of cash ........$ 2,450

Financing

Etc.

5. Prepare an absorption costing income statement, similar to the one shown in

Chapter 8, for the quarter ended March 31.

6. Prepare a balance sheet as of March 31.