information below for the months of January, February, and March. Balances at January 1 are expected to be as follows: Cash Accounts receivable 1. 2. 3. The budget is to be based on the following assumptions: 4. $6,880 5. 520,100 Inventories Accounts payable $386,800 166,300 Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if their payment is made within 10 days after the billing date. Receivables are booked a gross. The company collects 60% of the billings within the discount period, 25% by the end of the month after the date of sale, and 9% by the end of the second month after the date of sale; 6% prove uncollectible. It pays 54% of all materials purchases and the selling, general, and administrative expenses in the month purchased and the remainder in the following month. Each month's units of ending inventory are equal to 130% of the next month's units of sales. The cost of each unit of inventory is $20.
information below for the months of January, February, and March. Balances at January 1 are expected to be as follows: Cash Accounts receivable 1. 2. 3. The budget is to be based on the following assumptions: 4. $6,880 5. 520,100 Inventories Accounts payable $386,800 166,300 Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if their payment is made within 10 days after the billing date. Receivables are booked a gross. The company collects 60% of the billings within the discount period, 25% by the end of the month after the date of sale, and 9% by the end of the second month after the date of sale; 6% prove uncollectible. It pays 54% of all materials purchases and the selling, general, and administrative expenses in the month purchased and the remainder in the following month. Each month's units of ending inventory are equal to 130% of the next month's units of sales. The cost of each unit of inventory is $20.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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- Calculate the budgeted cash disbursements during the month of February.
- Calculate the budgeted cash collection during the month of January
- Calculated budgeted number of units of inventory to be purchased during the month of March
Transcribed Image Text:**Ivanhoe State Master Budget Overview:**
Ivanhoe State specializes in selling electronic products and is in the process of preparing the master budget for the months of January, February, and March. Below is a summary of the initial financial balances and key assumptions for the budget preparation:
**Balances at January 1:**
- **Cash:** $6,880
- **Inventories:** $386,800
- **Accounts Receivable:** $520,100
- **Accounts Payable:** $166,300
**Budget Assumptions:**
1. **Sales Billing:** Each month's sales are billed on the last day of the month.
2. **Customer Discounts:** A 3% discount is available to customers who pay within 10 days of the billing date. Receivables are booked at gross.
3. **Collection Pattern:**
- 60% of billings are collected within the discount period.
- 25% are collected by the end of the month following the sale.
- 9% are collected by the end of the second month after the sale.
- 6% are considered uncollectible.
4. **Payment for Purchases and Expenses:**
- 54% of all material purchases and selling, general, and administrative expenses are paid in the month they are purchased.
- The remainder is paid in the following month.
- Each month’s ending inventory is equal to 130% of the next month’s sales units.
5. **Inventory Cost:** Each unit of inventory costs $20.
This framework will guide the financial strategy for the period, ensuring efficient cash flow management and inventory control.
Transcribed Image Text:**Text for Educational Website**
**Expenses and Sales Data**
6. Selling, general, and administrative expenses, including $2,500 for depreciation, represent 15% of the current month’s sales.
7. The actual and projected sales data are as follows:
| **Month** | **Sales** | **Units** |
|-------------|-----------|-----------|
| November | $444,000 | 14,800 |
| December | $453,000 | 15,100 |
| January | $447,000 | 14,900 |
| February | $429,000 | 14,300 |
| March | $450,000 | 15,000 |
| April | $459,000 | 15,300 |
**Analysis:**
- **November:** Sales of $444,000 with 14,800 units sold.
- **December:** Slight increase to $453,000, with units climbing to 15,100.
- **January:** Sales decreased slightly to $447,000, with units at 14,900.
- **February:** Notable drop to $429,000 and 14,300 units.
- **March:** Recovery in sales to $450,000 with 15,000 units.
- **April:** Highest projected sales at $459,000, and 15,300 units.
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