ber 30, 2016, were gathered by the accounting department: Cash $135,000 Marketable securities (at cost) 210,000 Accounts receivable (all trade) 1,710,000 Inventories (15,000 units) 840,000 Operating expenses payable 140,400 Accounts payable (all merchandise) 583,200 Note payable (due 12/31/2016) 393,000
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.
Monthly
Grove, Inc. is a wholesaler for its only product, deluxe wireless electric drills, which sell for $92 each and cost Grove $56 each. On December 1, 2016, Grove's management requested a cash budget for December. The following selected account balances at November 30, 2016, were gathered by the accounting department:
| Cash | $135,000 | |||
| Marketable securities (at cost) | 210,000 | |||
| 1,710,000 | ||||
| Inventories (15,000 units) | 840,000 | |||
| Operating expenses payable | 140,400 | |||
| Accounts payable (all merchandise) | 583,200 | |||
| Note payable (due 12/31/2016) | 393,000 |
Actual sales for the months of October and November were 20,000 and 30,000 units, respectively. Projected unit sales for December and January are 50,000 and 40,000, respectively. Experience indicates that 50% of sales should be collected in the month of sale, 30% in the month following sale, and the balance in the second month following sale. Uncollectible accounts, returns, and allowances are negligible.
Planned purchases should provide ending inventories equal to 30% of next month's unit sales volume. Approximately 70% of the purchases are paid for in the month of purchase and the balance in the following month.
Monthly operating expenses are budgeted at $7.10 per unit sold plus a fixed amount of $189,000 including
Special anticipated year-end transactions include the following:
1. Declaration of a $22,500 cash dividend to be paid 2 weeks after the December 20 date of record.
2. Sale of one-half of the marketable securities held on November 30 a gain of $21,000 is anticipated.
3. Pay off the note payable due December 31, 2016.
4. Trade-in of an old computer originally costing $675,000 and now having
5. Grove's treasurer has a policy of maintaining a minimum month-end cash balance of $135,000 but wants to raise this to $225,000 at December 31. She has a standing arrangement with the bank to borrow any amount up to a limit of $450,000.
Prepare a cash budget for Grove, Inc., for December 2016.
Collections in December from customers:
| From October sales | |
| From November sales | |
| From December sales | |
| Total collections |
Payments on account for merchandise purchases:
| November | December | |
|---|---|---|
| Unit Sales | ||
| Ending inventories | ||
| Total units to be available | ||
| Beginning inventories | ||
| Units to be purchased | ||
| Total dollar purchases | ||
| Portion paid in December |
Payment of operating expenses:
| November | December | |
|---|---|---|
| Total variable operating expenses | ||
| Fixed operating expenses | ||
| Total operating expenses | ||
| Monthly depreciation | ||
| Operating expenses requiring payment | ||
| Amounts to be paid in December |
Cash required at time of computer purchase:
| Cost of new computer | ||
| Book value of old computer | ||
| Gain on trade-in | ||
| Total trade-in allowance | ||
| Balance owing at trade-in | ||
| Portion to be financed | ||
| Cash payment required |
| Grove, Inc. Cash Budget For the Month Ended December 31, 2016 |
|
|---|---|
| Beginning cash balance | |
| Cash receipts: | |
| Collections from customers (calculated above) | |
| Short-term borrowing | |
| Cash available | |
| Cash disbursements: | |
| Payments on accounts payable (calculated above) | |
| Payments of operating expenses payable (calculated above) | |
| Down payment on computer (calculated above) | |
| Total cash disbursements | |
| Ending cash balance |
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