Problem Seven: You are an accountant for Office Supplies Inc., a manufacturer of paper products. In the past, this company hasn't done much budgeting and have experienced cash shortages as a result. Since you are experienced in budgeting, you decide to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting to gather the information assembled below. Office Supplies Inc., sells all products for the same price$18 per unit. Actual sales of office supplies for the last three months and budgeted sales for the next six months follow: January (actual) 22.800 June (budgeted) 52.800 February (actual) 28,800 July (budgeted) 32,800 March (actual) 42.800 August (budgeted) 30.800 April (budgeted) 67.800 September (budgeted) 27,800 May (budgeted) 102,800 Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month. Suppliers are paid $5.40 for a unit. One-half of a month's purchases is paid for in the month of purchase, the other half is paid for in the following month. All sales are on credit. Only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company: Variable: Sales commissions 4% of sales Fixed: Advertising 340,000 Rent 32.000 Salaries 134,000 Utilities 14.000 Insurance 4.400 Depreciation 28.000 Cash S Insurance is paid on an annual basis, in November of each year. The company plans to purchase $23,000 in new equipment during May and $54,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $25,500 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below: Assets 88,000 Accounts receivable ($51,840 February sales; $616,320 March sales) 668,160 Inventory 146,448 Prepaid insurance 28,000 Property and equipment (net) 1,090,000 Total assets $ 2,020,608 Liabilities and Stockholders' Equity Accounts payable $ 114,000 Dividends payable 25,500 Common stock 1,080,000 Retained earnings 801,108 Total liabilities and stockholders' equity $ 2,020,608 The company maintains a minimum cash balance of $64,000. All borrowing is done at the beginning of a month; any repayments are ntade at the end of a month The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible in increments of $1,000), while still retaining at least $64,000 in cash. Assignment Prepare a master budget for the three-month period ending June 30. Include: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections, by month and in total. c. A merchandise purchases budget in units and in dollars. Show budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $64.000. 3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach. 4. A budgeted balance sheet as of June 30. Quarter S 0 0 Sales Budget April May 0 0 Budgeted unit sales Selling price per unit Total sales 0 0 os 0 Schedule of Expected Cash Collections April May June February sales March sales June Quarter April sales May sales June sales Total cash collections $ 0 $ 0 $ Budgeted Cash Disbursements for Merchandise Purchases April May June Quarter Accounts payable $ 0 Quarter April purchases 0 May purchases 0 June purchases 0 Total cash payments $ 0 $ 0$ 0 0 Merchandise Purchases Budget April May June Budgeted unit Sales Total media 0 0 0 0 0 0 Required purchases Unit cost Required dolor purchases $ 05 os May June Quarter 0 0 0 0 0 0 0 Cash Budget For the Three Months Ending June 30 April Beginning cash balance Add collections from customers Total cash available 0 Less cash disbursements: Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipment purchases Dividends paid Total cash disbursements 0 Excess (deficiency of cash available over disbursements 0 Financing: Borrowing Repayments Interest Total financing 0 Ending cash balance S OS Budgeted Income Statement 0 0 0 0 0 01 0 0 0 0 0 0 0 0 0 os 0 0 $ For the Three Months Ended June 30 Budgeted Balance Sheet June 30 Assets Variable expenses: 0 0 Fixed expenses: 0 Total assets s Liabilities and Stockholders' Equity 0 0 0 Total liabilities and stockholders' equity $ 0