PROBLEM 8-29 Completing a Master Budget LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, L08-10 The following data relate to the operations of Shilow Company, a wholesale distributor of cor- sumer goods: Current assets as of March 31: $8,000 Cash $20,000 Accounts receivable Inventory.... . $36,000 $120,000 $21,750 Bulding and equipment, net. Accounts payable. . Common stock. Retained earnings. $150,000 $12,250 The gross margin is 25% of sales. a. Master Budgeting Actual and budgeted sales data March lactua $50,000 $60,000 $72.000 590.000 $48.000 April May June. July Sales are 60 for cash and 40% on credit. Credt sales are collected in the month following goods sold sale. The accounts receivable at March 31 are a result of March credit sales. 4 Each momth's ending inventory should equal 80% of the following month's budgeted cost of One-half of a month's inventory purchases is paid for in the moeth of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the resalt of March purchases of inventory Monthly expenses are as follows: commissions, 12% of sales, rent, $2.500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly Depreciation is 500 per month (includes depreciation on new assets) Equipment costing $1.500 will be parchased for cash in April. Management would like to maintain a minimum cash halance 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 bomow in increments of S1,000 at the beginning of cach 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 dat 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. Aequired Using the preceding data L Complete the following schedule: Schedule of Expected Cash Collections May April June Quarter $36,000 Cash sales Credit sales 20,000 $56.000 Total collections 2 Complete the following: Merchandise Purchases Budget June Quarter Apri May $54,000 $45.000 Budgeted cost of goods sold Add desired ending inventory 43.200 Total needs 88.200 36.000 Less beginning inventory.. Required purchases $52.200 For April sales $60.000 saies x 75 % cost ratio $45.000. $54000 x 80%-$43.200 Schedule of Expected Cash Disbursements--Merchandise Purchases May Quarter June April $21,750 52,200 March purchases. Apri purchases May purchases. June purchases.. $21,750 26,100 $26,100 Total disbursements $47,850 3. Complete the following cash budget: June May Cash Budget Quarter April $8,000 56,000 Beginning cash balance. Add cash collections... 64,000 Total cash available... Less cash disbursements: 47,850 13,300 1,500 For inventory.. For expenses.... For equipment.. 62,650 Total cash disbursements 1,350 Excess (deficiency) of cash Financing: Etc. 4. Using Schedule 9 as your guide, prepare an absorption costing income statement for the quar- ter ended June 30 5. Prepare a balance sheet as of June 30
