Problem $20-8$AA $($Algo$)$ Merchandising: Preparation of a complete master budget LO P$4$

References

Dimsdale Sports, a merchandising company, reports the following balance sheet at December $31.$

To prepare a master budget for January, February, and March, use the following information.

a$.$ The company's single product is purchased for $$20$ per unit and resold for $$55$ per unit. The inventory level of $5,250$ units on

December $31$ is more than management's desired level, which is $20\%$ of the next month's budgeted sales units. Budgeted sales

are January, $7,000$ units; February, $9,000$ units; March, $11,000$ units; and April, $11,000$ units. All sales are on credit.

b$.$ Cash receipts from sales are budgeted as follows: January, $$259,750$; February, $$720,903$; March, $$505,616.$

c$.$ Cash payments for merchandise purchases are budgeted as follows: January, $$65,000$; February, $$314,200$; March, $$94,400.$

d$.$ Sales commissions equal to $20\%$ of sales dollars are paid each month. Sales salaries $($excluding commissions$)$ are $$7,500$ per

month. b$.$ Casn receIpts trom sales are budgeted as tollows: January, $$2by\frac{,}{b}$; rebruary, $\frac{\text{\$}}{20},y3$; March, $$55,616.$

c$.$ Cash payments for merchandise purchases are budgeted as follows: January, $$65,000$; February, $$314,200$; March, $$94,400.$

d$.$ Sales commissions equal to $20\%$ of sales dollars are paid each month. Sales salaries $($excluding commissions$)$ are $$7,500$ per

month.

e$.$ General and administrative salaries are $$11,000$ per month. Maintenance expense equals $$2,000$ per month and is paid in cash.

f$.$ New equipment purchases are budgeted as follows: January, $$33,600$; February, $$100,800$; and March, $$26,400.$ Budgeted

depreciation expense is January, $$6,225$; February, $$7,275$; and March, $$7,550.$

g$.$ The company budgets a land purchase at the end of March at a cost of $$140,000,$ which will be paid with cash on the last day of

the month.

h$.$ The company has an agreement with its bank to obtain additional loans as needed. The interest rate is $1\%$ per month and interest

is paid at each month$-$end based on the beginning$-$month balance. Partial or full payments on these loans are made on the last

day of the month. The company maintains a minimum ending cash balance of $$20,500$ at the end of each month.

i$.$ The income tax rate for the company is $39\%.$ Income taxes on the first quarter's income will not be paid until April $15.$

Required:

Prepare a master budget for the months of January, February, and March that has the following budgets:

Sales budget.

Merchandise purchases budgets.

Selling expense budgets.

General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for

merchandisers.

Capital expenditures budgets.

Cash budgets.

Budgeted income statement for entire quarter $($not monthly$)$ ended March $31.$

Budgeted balance sheet as of March $31.$

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Required $5$