Problem 7-8AA (Algo) Merchandising: Preparation of a complete master budget LO P4

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

DIMSDALE SPORTS COMPANY
Balance Sheet
December 31
Assets
Cash		$ 21,500
Accounts receivable		520,000
Inventory		150,000
Equipment	$ 648,000
Less: Accumulated depreciation	81,000
Equipment, net		567,000
Total assets		$ 1,258,500
Liabilities and Equity
Liabilities
Accounts payable	$ 355,000
Loan payable	14,000
Taxes payable (due March 15)	89,000	$ 458,000
Equity
Common stock	$ 474,000
Retained earnings	326,500
Total stockholders equity		800,500
Total liabilities and equity		$ 1,258,500

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

1. The companys single product is purchased for $30 per unit and resold for $55 per unit. The inventory level of 5,000 units on December 31 is more than managements desired level, which is 20% of the next months budgeted sales units. Budgeted sales are January, 7,000 units; February, 8,500 units; March, 11,500 units; and April, 9,000 units. All sales are on credit.
2. Cash receipts from sales are budgeted as follows: January, $254,750; February, $706,268; March, $502,192.
3. Cash payments for merchandise purchases are budgeted as follows: January, $65,000; February, $312,200; March, $143,400.
4. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $6,000 per month.
5. General and administrative salaries are $11,000 per month. Maintenance expense equals $2,100 per month and is paid in cash.
6. New equipment purchases are budgeted as follows: January, $36,000; February, $98,400; and March, $24,000. Budgeted depreciation expense is January, $ 7,125; February, $8,150; and March, $8,400.
7. 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.
8. 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 $21,500 at the end of each month.
9. The income tax rate for the company is 43%. Income taxes on the first quarters 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:

1. Sales budgets. 2. Merchandise purchases budgets. 3. Selling expense budgets. 4. General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers.

Budgeted balance sheet as of March 31. (Round your final answers to the nearest whole dollar.)

ales budgets.

DIMSDALE SPORTS
Sales Budget
	January	February	March	Totals
Budgeted sales units
Selling price per unit
Total budgeted sales

Merchandise purchases budgets.

DIMSDALE SPORTS
Merchandise Purchases Budget
	January	February	March
Calculation of Desired ending inventory
Next period budgeted sales units
Ratio of inventory to future sales
Total required units
Units to be purchased
Cost per unit
Cost of merchandise purchases

• Selling expense budgets.

  DIMSDALE SPORTS
  Selling Expense Budget
  	January	February	March
  Budgeted sales
  Sales commissions

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