Principles of Managerial Accounting - Budget Project Spring 2022 Bright World LLC (BW) distributes sunglasses to small retail stores in the Midwest part of the United States. BW does not manufacture the sunglasses, but instead buys the sunglasses from foreign sources and resells the sunglasses to small retail stores. It is December of 2021 and you have been hired as BW's Budget Manager. BW's President, Gary Christens, has asked you to prepare a master budget for 2022. You have gathered the following information and are ready to begin preparing the budget. Sales Information for BW: Actual sales 2021 Pairs of Sunglasses sold 1 quarter 70,000 94,000 3rd quarter 36,000 4th quarter 40,000 2nd quarter Forecasted sales 2022 1s quarter 2nd quarter 3rd quarter Your specific Input Your specific Input Your specific Input Your specific Input 4th quarter 1st quarter 2023 58,000 Shipping firms and U.S. Customs have previously delayed sunglass shipments arriving from the foreign manufacturers. BW management has addressed this concern by establishing a policy that the ending inventory for a quarter should be 50% of the next quarter's sales. All sunglasses are sold for $16 per pair. All sales are on credit with no discount, and are payable in 30 days. BW has found that only 20% of a quarter's sales are collected in the quarter of sale, with an additional 70% collected in the quarter following the sale, and the remaining 10% is collected in the second quarter following the sale. Bad debts have been insignificant and are not budgeted. BW buys sunglasses from foreign suppliers. BW pays $6 per pair of sunglasses. 40% of a quarter's purchase is paid for in the quarter of purchase, the other 60% is paid for in the quarter following the quarter of purchase. BW plans to purchase new computer equipment costing $50,000 during the second quarter of 2022 and a new packing machine for $40,000 during the 3rd quarter of 2022. Both of these equipment purchases will be for cash at the time of the purchase. BW has a regular dividend pattern which is expected to continue during 2022. This pattern involves BW's board of directors declaring a $25,000 quarterly dividend on March 15th, June 15th, September 15th, and December 15th. The dividends are paid in cash 30 days after the board's declaration. Selling and Administrative Expenses expected for 2022: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Operating Expenses expected for 2022 - accrual based Variable Expenses: Sales Commission 5% of sales 5% of sales 5% of sales 5% of sales revenue revenue revenue revenue Fixed Expenses: Advertising $210,000 $210,000 $210,000 $210,000 Rent $20,000 $20,000 $20,000 $20,000 Salaries $120,000 $120,000 $120,000 $120,000 Utilities $9,000 $9,000 $9,000 $9,000 Insurance $6,000 $6,000 $6,000 $6,000 Depreciation (includes the $14,000 $14,000 $15,000 $15,000 projected 2022 purchases) Sales commissions are accrued in the quarter the sales are made, but are paid to the sales staff in the following quarter. Insurance cost is $24,000 for a twelve-month period. The insurance premium is prepaid on October 1 of each year. The October 1st premium provides insurance coverage for the following 12 months, from October 1 through September 30. All other expenses are paid in cash in the quarter incurred for financial purposes. The company requires a minimum cash balance of $50,000. All borrowings and repayments are done in even $1,000 increments. All borrowings are done on the first day of the quarter, and repayments are made on the last day of the quarter. For each quarter, only a borrowing or a repayment is made. Interest for all monies borrowed during a quarter is computed and accrued on the last day of the quarter and paid to the bank in the following quarter. Money borrowed is charged interest at a 8% annual rate. [Borrowing and Interest Example - If BW computes that the company will need to borrow $20,000 for the first quarter, the loan would occur on January 1 and interest expense during the first quarter would be $400 and this interest would be paid to the bank in the second quarter. If in the second quarter, BW determines that it will be able to repay the $20,000 loan, the repayment would occur on the last day of the second quarter or June 30. Interest expense for the second quarter would $400 and this interest would be paid in the third quarter.] Additional information gathered includes the Balance Sheet at year-end 2021 and the 2021 Income Statement. Bright World LLC Balance Sheet December 31, 2021 ASSETS: Liabilities: Cash $74,000 Accounts Payable 184,320 Accounts Receivable 569,600 Dividends Payable 25,000 Inventory 187,200 Interest Payable 0 Prepaid Insurance 18,000 Loans Payable Property & Equipment 32,000 241.320 Accumulated Depreciation 800,000 647.480 1,447,480 Total Assets $1,688,800 Sales Cost of Goods Sold: Beginning Inventory Purchases Goods Available for Sale Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses: Advertising Expense Rent Expense Salaries Expense Utility Expense Insurance Expense Commission Expense Depreciation Expense Total Operating Expenses Income Before Interest Expense Interest Expense Net Income 975,000 (135,000) Commissions Payable Total Liabilities Capital Stock Retained Earnings $1,688,800 Total Liabilities and Stockholder's Equity Bright World LLC Income Statement Year Ended December 31, 2021 3,840,000 210,000 1,417,200 1,627,200 187,200 1,440,000 2,400,000 800,000 80,000 450,000 34,000 24,000 192,000 56,000 1,636,000 764,000 2,000 762,000 Total Stockholder Equity Check Figures First Quarter First Quarter 2022 Ending Cash Balance on the Cash Budget Budget Inputs Total 2022 2022 1st 2022 2nd 2022 3rd 2022 4th Total 2022 Cash 2022 Cash Payments for Borrowings on Quarter Quarter Quarter Quarter Cash Unit Unit Unit Unit Collections Inventory the Cash Sales Sales Sales Sales from Sales Purchases Budget 62,400 65,400 24,100 29,000 3,054,240 1,099,920 25,000 50,600 Total 2022 Net Income or (Net Loss) on the Income Statement 145,280 Project Steps 1. Prepare the following budget schedules for 2022, by quarter with a total 2022 column. Schedule heading are also required. a. A sales budget. b. A schedule of expected cash collections from sales. c. A merchandise purchases budget in units and in dollars. See the information on page 365 that is titled "Inventory Purchases - Merchandising Company". The book mentions that a purchases budget can be prepared in dollars and in units. I would suggest preparing your merchandise purchase in units and when the units have been determined, multiple the units time the purchase price. d. A schedule of expected cash disbursements for merchandise purchases