Angelini’s has been in business since January of the current year. The company buys fresh pasta and resells it to large supermarket chains. The following information pertains to Angelini’s first four months of operations: Purchases Sales January $50,000 $80,000 February 40,000 60,000 March 55,000 90,000 April 25,000 40,000 Angelini’s expects to open several new sales territories in May. In anticipation of increased volume, management forecasts May sales at $100,000. To meet this
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Angelini’s has been in business since January of the current year. The company buys fresh pasta and resells it to large supermarket chains. The following information pertains to Angelini’s first four months of operations:
|
|
Purchases |
Sales
|
|
January |
$50,000 |
$80,000 |
|
February |
40,000
|
60,000 |
|
March |
55,000
|
90,000 |
|
April |
25,000
|
40,000 |
Angelini’s expects to open several new sales territories in May. In anticipation of increased volume, management
All of Angelini’s sales are on account. Due to strict credit policies, the company has no
|
Percent collected in month of sale |
40% |
|
Percent collected in month following sale |
50 |
|
Percent collected in the second month following sale |
10 |
Angelini’s normally pays for 75 percent of its purchases in the month that the purchases are made. The remaining amount is paid in the following month. The company's fixed selling and administrative expenses average $10,000 per month. Of this amount, $3,000 is
Angelini’s debt service is $4,000 per month. Of this amount, approximately $3,000 represents interest expense, and $1,000 is payment on the principal. The company's tax rate is approximately 25 percent. Quarterly tax payments are made at the end of March, June, September, and December.
Instructions:
- Prepare Angelini’s
budgeted income statement for May. - Prepare Angelini’s
cash budget for May. Assume that the company's cash balance on May 1 is $30,000. - What are the primary benefits that Angelini’s will gain from preparing and using a budget?
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