Summary:

The following data is provided for the company to complete certain parts of the master budget.

Requirements:

Create the following budgets for each quarter and in total for the year.

Sales budget

Cash collections budget

Cash budget

Master Budget Data

The budgeted unit sales are 500 units, 700 units, 800 units, and 1,000 units for quarters 1-4, respectively. The budgeted selling price is $50 per unit.

All sales are on credit. 50% percent of credit sales are collected in the quarter of the sale, 35% are collected in the next quarter, and the remainder is collected in the quarter after. The following data is provided to complete the cash collections budget:

Q1 cash collection from prior year Q4 sales: $9,000

Q1 cash collection from prior year Q3 sales: $2,000

Q2 cash collection from prior year Q4 sales: $1,000

The company plans to maintain a minimum cash balance at the end of each quarter of $60,000. If the cash balance is below $60,000, the company will borrow money from the bank to meet their minimum. All borrowings take place on the last day of the quarter, an interest rate of 2.5% per quarter, and principal and interest are paid quarterly. The following data is provided to complete the cash budget:

Beginning of the year cash balance: $70,000

Q1 total cash disbursements: $26,000

Q2 total cash disbursements: $41,250

Q3 total cash disbursements: $29,000

Q4 total cash disbursements: $38,000

Briefly explain what caused the change in the ending year-end cash balance.

Note: When completing the cash budget remember that all borrowings that place on the last day of the quarter and principal and interest payments take place in the next quarter.