Project 2 - Case 2 40 points Davis Dry Goods distributes silk ties. You are in charge of creating Davis' master budget for the upcoming second quarter, April-June 2018. Davis desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $9 each. Recent and forecasted sales in units are as follows: January (actual) February (actual) March (actual) April May 21,000 June 25,000 July 27,000 August 32,000 September 45,000 65,000 43.000 40,000 36,000 The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed to equal 90% of the next month's sales in units. The ties cost the company $5 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month's sales are collected by month-end. An additional 75% is collected in the following month. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below: $ 1 per tie Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous $ 25,200 $ 16,000 $ 1,300 $ 1,500 $ 3,600 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Davis has an agreement with a bank that allows it 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 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 $10,000 in cash. Land will be purchased during May for $21.000 cash. Davis declares and pays dividends of $10,000 in the first month of each quarter. The company's balance sheet at March 31 is given below. Assets Cash Accounts receivable ......... Inventory (28,800 ties) ........................ Prepaid Insurance ........... Fixed assets, net ....... Total Assets .....$ 11,000 - 182,250 144,000 15,600 217,100 ...... $ 569,950 Liabilities and Stockholders' Equity Accounts Payable ...............................$ 78,750 Capital Stock ..................... 310,000 Retained Earnings ....... 181.200 Total Liabilities and Stockholders' Equity-....$ 569.950 Required: Prepare a master budget for Davis Dry Goods for the quarter ending June 30, 2018. Include the following detailed budgets: 1 a. A sales budget, by month and in total b. A schedule of expected cash collections from sales, by month and in total c. A merchandise purchases budget, by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. e. A selling and administrative budget, by month and in total. 2 A cash budget by month, but not in total. 3 A budgeted income statement for the three-month period ending June 30. 4 A budgeted balance sheet as of June 30
