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The company desires to maintain a minimum ending cash balance each month of $ 1 0 , 0 0 0 . The ties are sold
The company desires to maintain a minimum ending cash balance each month of $ The ties are
sold to retailers for $ each. Recent and forecasted sales in units are as follows:
Month Units Month Units
January Actual June
February Actual July
March Actual August
April September
May October
The large buildup in sales before and during June is due to Fathers Day. Ending inventories are
supposed to equal of the next months sales in units. The ties cost the company $ each.
Purchases are paid for as follows: in the month of purchase and the remaining in the following
month.
All sales are on credit, with no discount, and payable within days. The company has found, however,
that only of a months sales are collected by monthend. An additional is collected in the
following month, and the remaining is collected in the second month following sale. Bad debts have
been negligible
The companys monthly selling and administrative expenses are given below:
Variable:
Sales Commissions $ for each unit tie sold
Fixed:
Wages and Salaries $
Utilities $
Insurance $
Depreciation $
Miscellaneous $
All selling and administrative expenses are paid during the month, in cash, with the exception of
depreciation and insurance expired. New fixtures will be purchased during May for $ cash. company declares dividends of $ per quarter, payable in the first month following quarter end. The
company follows calendar quarters.
The company has an agreement with a bank that allows it to borrow in increments of $ at the
beginning of each month, up to a total loan balance of $ The interest rate on these loans is
per annum, and for simplicity, we will assume that interest is not compounded. On the last day of each
calendar quarter, the company must pay the bank all of the accumulated interest on the loan and as
much of the loan as possible in increments of $ while still retaining at least $ in cash.
The companys balance sheet at March st is shown below:
Required:
Prepare a master budget for the threemonth period ending June th Include the following detailed
budgets schedules:
A Sales budget by Month with a total for the period.
B Schedule of expected cash collections from sales, by month and a total for the quarter.
C Merchandise purchases budget in units and in dollars. Show the budget by month and in total.
D Schedule of expected cash disbursements for merchandise purchases, by month and in total.
A cash budget, show the budget by month and in total for the quarter.
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