Question
Watson Products is a merchandising company that sells baby lotion in New York. The company is about to prepare its budgets for the first quarter
Watson Products is a merchandising company that sells baby lotion in New York. The company is about to prepare its budgets for the first quarter of the year 20x2. The following information has been assembled to assist in preparing the companys budgets of the quarter.
a. Account balances from the post-closing trial balance on December 31, 20x1 follows :
|
| Debit | Credit |
| Cash | $ 42,000 |
|
| Account receivable. | 369,000 |
|
| Inventory (8,100 bottles) ... | 145,800 |
|
| Land. | 150,000 |
|
| Building | 200,000 |
|
| Accumulated depreciation Building ......... |
| $ 20,000 |
| Accounts Payable (from inventory purchased) |
| 113,760 |
| Capital Stock. |
| 705,000 |
| Retained Earnings. | ________ | 68,040 |
|
| $906,800 | $906,800 |
b. Actual sales and budgeted sales are as follows (selling price per bottle $30) :
| Actual Sales |
| Budgeted Sales | ||||
| 20x1 | November | $360,000 |
| 20x2 | January | $540,000 |
|
| December | $420,000 |
|
| February | $600,000 |
|
|
|
|
|
| March | $750,000 |
|
|
|
|
|
| April | $840,000 |
Sales are 25% for cash and 75% on credit. Eighty percent (80%) of a months credit sales are collected in the first month after sales, and the remainder 20% are collected in the second month after sales.
c. The Company maintains its ending inventory at 45% of the following months cost of goods sold.
d. The purchase cost per bottle of lotion for the quarter is the same as the inventory on December 31, 20x1. Inventory purchases are paid 60% in the month of purchase, and the remaining balance are paid in the following month.
| Inventory purchases of the quarter | ||
| 20x2 | January | $ ? |
|
| February | $ ? |
|
| March | $ ? |
e. Monthly operating expenses are budgeted and paid when incurred as follows :
Sales commission. 5% of sales
Delivery expense. 2% of sales
Salaries expense $15,000
Advertising expense. $ 4,000
Depreciation expense $ 2,000
Other expenses. 3% of sales
f. Land will be purchased for cash :
20x2: January $ 100,000
February $ 80,000
g. The company must maintain a minimum cash balance of $40,000. All borrowings are done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only when principal is repaid. The interest rate is 12% per annum.
Example of an answer
6000
1.
Total gross profit of the quarter
Answer
2.
Total operating expenses in the income statement of the first quarter
Answer
3.
Total cash disbursements for operating expenses of the quarter
Answer
4.
Total Inventory purchases for the quarter
Answer
5.
Total cash disbursement for inventory purchases in the first quarter
Answer
6.
Total cash collected from sales in the quarter
Answer
7.
Total cash disbursements of the quarter
Answer
8.
The amount of cash the company will borrow in January
Answer
9.
Total cash repayment will be made in February
Answer
10.
Interest expense in the income statement of the quarter.
Answer
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