Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter: a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Debits Credits Cash $ 48,000 Accounts receivable 224,000 Inventory 60,000 Buildings and equipment (net) 370,000 Accounts payable $ 93,000 Capital shares 500,000 Retained earnings 109,000 $702,000 $702,000 b. Actual sales for December and budgeted sales for the next four months are as follows: December (actual) $280,000 January 400,000 February 600,000 March 300,000 April 200,000 c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. d. The company’s gross margin is 40% of sales. e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales. f. At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost. g. One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid for in the following month. HECK FIGURES a) February purchases: $315,000 February ending cash balance: $30,800 Budgeting 329 h. During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500. i. During January, the company will declare and pay $45,000 in cash dividends. j. The company must maintain a minimum cash balance of $30,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is 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 at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.) Required: Using the preceding data, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections. 2. Inventory purchases budget. 3. a. Schedule of cash disbursements for purchases. b. Schedule of cash disbursements for expenses. 4. Cash budget. 5. Income statement for the quarter ending March 31 6. Balance sheet as of March 31.
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.
Hillyard Company, an office supplies specialty store, prepares its
The following data have been assembled to assist in preparation of the master budget for the first quarter:
a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following
account balances:
Debits Credits
Cash $ 48,000
Inventory 60,000
Buildings and equipment (net) 370,000
Accounts payable $ 93,000
Capital shares 500,000
$702,000 $702,000
b. Actual sales for December and budgeted sales for the next four months are as follows:
December (actual) $280,000
January 400,000
February 600,000
March 300,000
April 200,000
c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month
following sale. The accounts receivable at December 31 are a result of December credit sales.
d. The company’s gross margin is 40% of sales.
e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $70,000
per month; shipping, 5% of sales;
f. At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs,
stated at cost.
g. One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid
for in the following month.
HECK FIGURES
a) February purchases: $315,000
February ending
cash balance:
$30,800
Budgeting 329
h. During February, the company will purchase a new copy machine for $1,700 cash. During March, other
equipment will be purchased for cash at a cost of $84,500.
i. During January, the company will declare and pay $45,000 in cash dividends.
j. The company must maintain a minimum cash balance of $30,000. An open line of credit is available at
a local bank for any borrowing that may be needed during the quarter. All borrowing is 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 at the time of payment of principal.
The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)
Required:
Using the preceding data, complete the following statements and schedules for the first quarter:
1. Schedule of expected cash collections.
2. Inventory purchases budget.
3. a. Schedule of cash disbursements for purchases.
b. Schedule of cash disbursements for expenses.
4.
5. Income statement for the quarter ending March 31
6.
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