Since you are well trained in budgeting you have decided to prepare comprehensive budgets for the upcoming first quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below. The company sells many styles of sneakers but all are sold for the same price- $20.00 per pair. Actual sales of sneakers for the last three months and budgeted sales for the next six months follow in pairs of shoes) October (actual) 37,000 March (budget) 63,000 November (actual) 22,000 April (budget) 51,000 December (actual) 50,000 May (budget) 48,000 January (budget) 56,000 June (budget) 34,000 February (budget) 75,000 Sufficient inventory should be on hand at the end of each month to supply 20.0% of the shoes sold in the following month. The Company pays suppliers $12.00 for a pair of shoes. 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, with no discount, and payable within 15 days. The company has found sales are collected as follows: 35% of a month's sales are collected in the month of sale 55% is collected in the following month 10% is collected in the second month following sale Monthly operating expenses for the company are given below: Variable: Sales Commissions 8% of sales Fixed: Advertising Rent Salaries Utilities Insurance Depreciation $73,000 $52,000 $100,000 $20,000 $11,000 $14,000 Insurance is paid on an annual basis, on August 1st of each year. BUS 215 The company plans to purchase $57.000 in new equipment during Feburary a $30,000 in new equipment during March, both purchases will be for cash. The company declares dividends of $25,000 each quarter, payable In the first month of the following quarter. A listing of the company's ledger accounts as of December 31 s prven below ASSETS Cash $70,000 Accounts Receivable 654,000 Inventory 134 400 Prepaid insurance 77,000 Property and Equip (net of depreciation) 855.000 Total Assets $1,830,400 Falance includes $44,000 in November sales and an additional $650,000 in December sales LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable $307,200 Dividends Payable 25,000 Common Stock 750,000 Retained Earnings Total Liabilities & Stockholders' Equity $1.830,400 The company maintains a minimum cash balance of $45,000 748.200 The company has an agreement with a bank that allows the company to borrow cash at the beginning of each month The interest rate on these loans 1.00 per month and for simplicity we will assume that interest is not compounded. All borrowing is done at the beginning of a month any repayments are made at the end of a month the Company makes repayments in any month when the cash is available while still retaining at least 545,000 in cash. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan Required: Prepare a master budget for the three month period ending March 31. 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 LA merchandise purchases budget in units and in dollars. Show the 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 545,000 3. A budgeted income statement for the three month period ending March 31. Use the contribution approach 4. A budgeted balance sheet as of March 31
