Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available Deacon CompanyBalance SheetMarch 31 Assets Cash $ 55,000 Accounts receivable 36,000 Inventory 40,000 Buildings and equipment, net of depreciation 100,000 Total assets $ 231,000 Liabilities and Stockholders’ Equity Accounts payable $ 51,300 Common stock 70,000 Retained earnings 109,700 Total liabilities and stockholders’ equity $ 231,000 Budgeted Income Statements April May June Sales $ 100,000 $ 110,000 $ 130,000 Cost of goods sold 60,000 66,000 78,000 Gross margin 40,000 44,000 52,000 Selling and administrative expenses 15,000 16,500 19,500 Net operating income $ 25,000 $ 27,500 $ 32,500 Budgeting Assumptions: 60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale. Budgeted sales for July are $140,000. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold. Depreciation expense is $1,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred. Required: 1. Calculate the expected cash collections for April, May, and June. 2. Calculate the budgeted merchandise purchases for April, May, and June. 3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June. 4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)
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.
Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available
| Deacon Company March 31 |
||
| Assets | ||
| Cash | $ | 55,000 |
| 36,000 | ||
| Inventory | 40,000 | |
| Buildings and equipment, net of |
100,000 | |
| Total assets | $ | 231,000 |
| Liabilities and |
||
| Accounts payable | $ | 51,300 |
| Common stock | 70,000 | |
| 109,700 | ||
| Total liabilities and stockholders’ equity | $ | 231,000 |
| April | May | June | |||||||
| Sales | $ | 100,000 | $ | 110,000 | $ | 130,000 | |||
| Cost of goods sold | 60,000 | 66,000 | 78,000 | ||||||
| Gross margin | 40,000 | 44,000 | 52,000 | ||||||
| Selling and administrative expenses | 15,000 | 16,500 | 19,500 | ||||||
| Net operating income | $ | 25,000 | $ | 27,500 | $ | 32,500 | |||
Budgeting Assumptions:
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60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.
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Budgeted sales for July are $140,000.
-
10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase. The accounts payable at March 31 will be paid in April.
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Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
-
Depreciation expense is $1,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
Required:
1. Calculate the expected cash collections for April, May, and June.
2. Calculate the budgeted merchandise purchases for April, May, and June.
3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.
4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)
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