Session 7 Budgeting- Videos and Readiness work Attaboy sells sports jerseys. The jerseys are manufactured by a supplier that makes them according to Attaboy's specifications. You are the chief financial officer for Attaboy and you need to prepare a master budget for Year4. Attaboy needs the budget for the year, broken down by quarters. Here is Attaboy's balance sheet as of the end of Year3 (which, of course, is the beginning of Year4) Cash 36,800 Accounts Receivable $ $ 353,000 Inventory $ 10,000 PP&E $ 415,000 Accumulated depreciation $ (200,000) $ 614,800 Acct Payable $ 426,000 Capital stock 150,000 Retained earnings 38,800 Total L&SE $ 614,800 You have gathered the following information about expected activity: 1. The marketing department provided projected sales for Attaboy. In Quarters 1 and 2, each jersey is expected to sell for $40. A $2 price increase is predicted in Quarter 3 and a $3 increase in Quarter 4. Quarter 1, Year4: 21,000 jerseys Quarter 2, Year4: 25,000 jerseys Quarter 3, Year4: 23,000 jerseys Quarter 4, Year4: 22,000 jerseys Quarter 1, Year5: 23,000 jerseys 2. Attaboy sells all of the merchandise on credit. Historically, Attaboy receives 70% of each quarter's sales during the quarter, 20% in the next quarter, and 10% in the quarter after that. Accounts receivable at 12/31/Year3 are expected to be collected as follows: $238,000 in Quarter 1 and $115,000 in Quarter 2. 3. Attaboy estimates that it will have a gross margin percentage of 60% in Year4. They suffered from a shortage of inventory at the end of Year4, so they plan to keep inventory levels much higher in Year4, Inventory levels are budgeted to be 35% of the next quarters cost of goods sold. They pay for inventory purchases in the quarter following the purchase. 4. Variable selling and administrative costs are estimated at $10 per unit sold. Fixed selling and administrative costs are $70,000 per quarter. (This amount includes $3,000 of depreciation per quarter). Attaboy will purchase land for $500,000 in the third quarter, for cash. They hope to begin construction on a flagship facility in Year5. 5. Attaboy pays quarterly dividends of $50, 000. The dividends are paid in the same quarter they are declared. 7. Attaboy has to maintain a minimum cash balance of $30,000. Any projected borrowings are assumed to be borrowed at the beginning of the quarter. Payments are made at the end of the following quarters to the extent cash is available. All borrowings and repayments are made in $10,000 increments. Interest is paid at the time of repayment. Interest is calculated at 12% per year (no compounding)