Problem 8-27 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Current assets as of March 31:
Cash	$	8,100
Accounts receivable	$	22,400
Inventory	$	43,200
Building and equipment, net	$	129,600
Accounts payable	$	25,800
Capital stock	$	150,000
Retained earnings	$	27,500

a.	The gross margin is 25% of sales.
b.	Actual and budgeted sales data:

March (actual)	$56,000
April	$72,000
May	$77,000
June	$102,000
July	$53,000

c.	Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
d.	Each months ending inventory should equal 80% of the following months budgeted cost of goods sold.
e.	One-half of a months inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
f.	Monthly expenses are as follows: commissions, 12% of sales; rent, $2,900 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $972 per month (includes depreciation on new assets).
g.	Equipment costing $2,100 will be purchased for cash in April.
h.	Management would like to maintain a minimum cash balance of at least $4,000 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 $20,000. 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.

2. Complete the following: Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold 54,000 46,200 Add desired ending inventory 0 0 0 100,200 Total needs 43,200 Less beginning inventory S 57,000 0 0$ 0 Required purchases Budgeted cost of goods sold for April 3$72,000 sales x 75% $54,000 Add desired ending inventory for April 3$57,750 x 80% -$46,200 Schedule of Expected Cash Disbursements-Merchandise Purchases April May June Quarter 25,800 25,800 March purchases 28,500 28,500 57,000 April purchases May purchases June purchases S 54.300 28,500 0 82,800 Total disbursements