You have just been hired as a management trainee by Benjamin’s Fashions, a nationwide distributor of a designer's silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given
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.
You have just been hired as a management trainee by Benjamin’s Fashions, a nationwide distributor of a designer's silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a
The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8.00 each (75% of total sales, all on account) and $10.00 each to the individual customers in the mall stores (25% of total sales, all in cash). Recent and
Months
Units
Months
Units
August 2021 Actual
20,000
January 2022 Budgeted
60,000
September 2021 Actual
24,000
February 2022 Budgeted
40,000
October 2021 Actual
28,000
March 2022 Budgeted
36,000
November 2021 Budgeted
35,000
April 2022 Budgeted
32,000
December 2021 Budgeted
45,000
The large buildup in sales before and during January is due to the Festive seasons. The company is planning to open a new store in a shopping mall during May 2022 and expects to increase its’ sales by 20% every month from May to July 2022 and then decline by 5% from August till September 2022 and afterward the sales will be unchanged. Ending inventories are supposed to equal 90% of the next month's sales in units. The ties cost the company $5.00 each.
The Opening of the new store will cost the company $45,000 in advertising during April 2022. Furniture and Fixtures will cost $20,000 during April. The rent for the new store will be $2,000 a month starting April 2022. A new Sales Manager will be hired at a monthly salary of $4,500 per month and he will start in April 2022. Additional costs of running the new store will be $2,500 per month. To cover all the extra costs due to the new store the owners decided to provide an interest-free loan of $70,000 to the company during May 2022 with a condition that the company will repay the loan as much as possible at the end of the year only if there is sufficient cash balance after the bank loan is repaid.
Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All credit sales to the retailers are due within 30 days. The company has found, however, that only 70% of a month's sales are collected by the following month, and the remaining 30% is collected in the second month following the sale.
The company's monthly operating expenses are given below:
Variable cost:
Sales Commission $1.00 per Tie sold
Fixed Costs:
Wages and Salaries $92,000
Utilities 14,000
Insurance 1,200
Miscellaneous 3,000
All operating expenses are paid during the month in cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company's balance sheet on December 31, 2021, is given below:
ASSETS
Cash ……………………………………………………… $ 14,000
Accounts Receivable ($78,750 November sales; $337,500 from December Sales…… 416,250
Inventory (54,000 units) ………………………………………………… 270,000
Fixed Assets net of Depreciation …………………………………… 172,700
Total Assets ……………………………………………………………… $ 872,950
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ACCT_3000 Group Project Page 3
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts Payable ………………………………………………………… $ 168,750
Dividends Payable ………………………………………………………… 12,000
Capital Stock ……………………………………………………………… 400,000
Retained Earnings ………………………………………………………… 292,200
Total Liabilities and Shareholders’ Equity ……………………………….. $ 872,950
==========
The company has an agreement with the Prime bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total line of credit balance of $70,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of every month, the company would pay the bank all of the accumulated interest on the loan and pay back as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash balance. Interest on the loan is paid only at the time of repayment of the loan and on the outstanding amount.
Required:
Prepare a master budget for the 12 months ending December 31, 2022. Include the following detailed budgets:
1. a. A Sales Budget, by month and in total.
b. A Schedule of expected cash collections from sales, by month and in total.
c. A Merchandise Purchases budget in units and dollars. Show the budget by month and in
total.
d. A Schedule of Expected Cash Disbursements for merchandise purchases, by month and in
total.
2. A
3. A
4. A Budgeted Balance Sheet as of December 31, 2022.
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