b. C. e. f - h. PROBLEM 8-29 Completing a Master Budget LOB-2, LOB-4, LOB-7, LOB-B, LOB-S, LOB-10 The following data relate to the operations of Shilow Company, a wholesale distributor of con- sumer goods: a. The gross margin is 25% of sales. Actual and budgeted sales data: Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales. d. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. Current assets as of March 31: Cash Cash sales Credit sales.. Total collections...... Accounts receivable. Inventory... Building and equipment, net. Accounts payable. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory. 2. Complete the following: Common stock.. Retained eamings. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets). Required: Using the preceding data: 1. Complete the following schedule: March (actual).. April. May June... July Equipment costing $1,500 will be purchased for cash in April. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Schedule of Expected Cash Collections Total needs.... Less beginning inventory.. Required purchases Merchandise Purchases Budget Budgeted cost of goods sold Add desired ending inventory. March purchases.. April purchases.. May purchases. June purchases.. Total disbursements Cash Budget Beginning cash balance. Add cash collections.... Total cash available. Less cash disbursements: "For April sales: $60,000 sales x 75% cost ratio-$45.000. $54.000 x 80%-$43,200 1. Complete the following cash budget: For inventory.. For expenses.. For equipment... Total cash disbursements Excess (deficiency) of cash Financing: Etc. $50,000 $60,000 $72,000 $90,000 $48.000 April $36,000 20,000 $56,000 Schedule of Expected Cash Disbursements-Merchandise Purchases May 88,200 36,000 $52,200 April May $45,000* $54.000 43,200 $47,850 $8,000 $20,000 $36,000 $120,000 $21,750 $150,000 $12,250 May April $21,750 26,100 $26,100 April $8,000 56,000 64,000 47,850 13,300 1,500 62,650 1,350 May June June June June Quarter Quarter Quarter $21,750 52,200 Quarter
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.
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PROBLEM 8-29 Completing a Master Budget LOB-2, LOB-4, LOB-7, LOB-B, LOB-9, LOB-10
The following data relate to the operations of Shilow Company, a wholesale distributor of con-
sumer goods:
g.
h.
b. Actual and budgeted sales data:
a. The gross margin is 25% of sales.
c.
d.
e.
One-half of a month's inventory purchases is paid for in the month of purchase; the other half
is paid for in the following month. The accounts payable at March 31 are the result of March
purchases of inventory.
Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other
expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly.
Depreciation is $900 per month (includes depreciation on new assets).
Equipment costing $1.500 will be purchased for cash in April.
Management would like to maintain a minimum cash balance of at least $4,000 at the end
of each month. The company has an agreement with a local bank that allows the company to
borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of
$20,000. The interest rate on these loans is 1% per month and for simplicity we will assume
that interest is not compounded. The company would, as far as it is able, repay the loan plus
accumulated interest at the end of the quarter.
Cash sales
Credit sales..
Total collections.
Current assets as of March 31:
Cash
Accounts receivable.
2. Complete the following:
Inventory...........
Building and equipment, net..
Accounts payable.
Common stock.
Retained earings.
Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following
sale. The accounts receivable at March 31 are a result of March credit sales.
March (actual).
April..
Required:
Using the preceding data:
1. Complete the following schedule:
Schedule of Expected Cash Collections
May
June.
July
Each month's ending inventory should equal 80% of the following month's budgeted cost of
goods sold.
Merchandise Purchases Budget
March purchases.....
April purchases..
Budgeted cost of goods sold
Add desired ending inventory.
Total needs...
Less beginning inventory.
Required purchases.....
May purchases..
June purchases..
Total disbursements
Cash Budget
*For April sales: $60,000 sales x 75% cost ratio= $45,000.
*$54.000 x 80%-$43,200
1. Complete the following cash budget:
Beginning cash balance...
Add cash collections.....
Total cash available.
Less cash disbursements:
For inventory..
For expenses.
For equipment.
Total cash disbursements
Excess (deficiency) of cash
Financing:
Etc.
April
$36,000
20,000
$56,000
$50,000
$60,000
$72,000
$90,000
$48,000
Schedule of Expected Cash Disbursements-Merchandise Purchases
May
88,200
36,000
$52,200
April
May
$45,000 $54,000
43,200
$47,850
May
April
$21,750
26,100 $26,100
$8,000
$20,000
$36,000
$120,000
$21,750
$150,000
$12,250
April
$8,000
56,000
64,000
47,850
13,300
1,500
62,650
1,350
May
June
June
June
June
Quarter
Quarter
Quarter
$21,750
52,200
Quarter"

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