You just got a job with Bling, Inc. The company distributes bracelets to various
ID: 2342258 • Letter: Y
Question
You just got a job with Bling, Inc. The company distributes bracelets to various retail outlets across the country. In the past, the company hasn’t done budgeting and they run short on cash periodically.
Because your wonderful Cost Accounting teacher prepared you so well, you decided to prepare comprehensive budgets for the second quarter in order to show management the benefits. You included other departments in your decision making process and have gathered the information below.
The company sells many styles of bracelets, but they are all sold for $16 each. Actual sales of bracelets in units for the last three months and budgeted sales are below:
January (actual)
22,000
June (budget)
52,000
February (actual)
28,000
July (budget)
32,000
March (actual)
42,000
August (budget)
30,000
April (budget)
67,000
September (budget)
27,000
May (budget)
102,000
The increase in sales before and during May is due to Mother’s Day. Bling, Inc. wants to make sure they have enough inventory on hand at the end of each month to supply 40% of the bracelets sold in the following month.
Manufacturers are paid $5 for each bracelet. 50% of a month’s purchases are paid for in the month of purchase; the remainder is paid for in the following month. All credit sales are due (without discount), with no discount, in15 days. Based on history, Bling, Inc. has found, that only 20% of a month’s sales are collected in the month of sale. 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been immaterial and can be ignored.
Monthly operating expenses for the company are given below:
Variable:
Sales commissions
4%
of sales
Fixed:
Advertising
$
300,000
Rent
$
28,000
Salaries
$
126,000
Utilities
$
12,000
Insurance
$
4,000
Depreciation
$
24,000
Insurance is paid in November of each year and covers a 12 month period.
The company expects to buy $21,000 in new, better equipment in May and $50,000 in new equipment in June. The new equipment purchases in both months will be paid in cash. The company declares dividends of $22,500 each quarter, payable in the first month of the following quarter.
A listing of Bling, Inc.’s accounts as of March 31 is given below:
Assets
Cash
$
84,000
Accounts receivable ($44,800 February sales; $537,600 March sales)
582,400
Inventory
134,000
Prepaid insurance
26,000
Property and equipment (net)
1,050,000
Total assets
$
1,876,400
Liabilities and Stockholders’ Equity
Accounts payable
$
110,000
Dividends payable
22,500
Common stock
1,000,000
Retained earnings
743,900
Total liabilities and stockholders’ equity
$
1,876,400
Bling, Inc. will always maintain a minimum cash amount of $60,000. All borrowing is always done at the beginning of a month; all repayments (if any and able) are made at the end of the month.
The company can borrow in increments of $1,000 at the beginning of each month. The interest rate is 1% per month (assume no compounding interest). At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while maintaining their minimum cash balance.
Required: YOUR FINAL WORK MUST BE TYPED AND YOU SHOULD USE EXCEL/LINKED FORMULAS. TEAMS OF UP TO 3 STUDENTS ARE PERMITTED. You must submit your work, HARD COPY, at the beginning of CLASS and one member of your team must upload the file to course web. The file name must be the last names of each group member (5 point deduction if not). 10 points will be DEDUCTED if the documents are not easily readable and formatted professionally [40 points].
1.
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
A sales budget, by month and in total for the quarter.
A schedule of expected cash collections from sales, by month and in total for the quarter.
A merchandise purchase budget in units and dollars. Show the budget by month and in total for the quarter (round unit cost of purchases to 1 decimal point).
A schedule of expected cash disbursements for purchases by month and in total for the quarter.
2. A cash budget. Show the budget by month and in total for the quarter. You must show disbursements separately for partial credit if totals are incorrect. For example, merchandise, advertising, rent etc.
3. A budgeted income statement for the three-month period ending June 30 (Use the internal approach for reporting).
4. A budgeted balance sheet as of June 30th in good form.
You just got a job with Bling, Inc. The company distributes bracelets to various retail outlets across the country. In the past, the company hasn’t done budgeting and they run short on cash periodically.
Because your wonderful Cost Accounting teacher prepared you so well, you decided to prepare comprehensive budgets for the second quarter in order to show management the benefits. You included other departments in your decision making process and have gathered the information below.
Explanation / Answer
Bling Company Sales Budget April May June Total Sales (units) 67000 102000 52000 221000.00 Unit Price 16 16.00 16 16 Sales (Dollars) 1072000 1632000 832000 3536000 Bling Company Schedule of Cash collection Feb Mar April May June Total Sales (Amount) 448000 672000 1072000 1632000 832000 3536000 Sales Same month -20% 214400 326400 166400 707200 Sales following month - 70% 470400 750400 1142400 2363200 665600 Sales Second month - 10% 44800 67200 107200 219200 163200 Total Collection 729600 1144000 1416000 3289600 828800 Bling Company Purchase Budget April May June Total Sales 67000 102000 52000 221000 Add : Ending Inventory 40800 20800 12800 12800 Total Production 107800 122800 64800 233800 Less : Opening Inventory 26800 40800 20800 Purchases (Units) 81000 82000 44000 207000 Unit Price $5 $5 $5 Purchases (Dollars) $405,000 $410,000 $220,000 $1,035,000 Bling Company Schedule of cash payment for Purchases April May June Total Purchases (Dollars) 405000 410000 220000 1035000 Same Month - 50% 202500 205000 110000 517500 Following Month - 50% 110000 202500 205000 517500 Total 312500 407500 315000 1035000 Bling Company Cash Budget April May June Total Beginning Cash Balance $84,000 $60,720 $244,940 $84,000 Add : Collections 729600 1144000 1416000 3289600 Total Cash available $813,600 $1,204,720 $1,660,940 $3,373,600 Less : Payments Purchases 312500 407500 315000 1035000 Sales Comission (4% of sales) 42880 65280 33280 141440 Advertising 300000 300000 300000 900000 Rent 28000 28000 28000 84000 Salaries $126,000 $126,000 $126,000 378000 Utilities $12,000 $12,000 $12,000 36000 Equipment $21,000 $50,000 71000 Dividends $22,500 22500 Total Disbursements 843880 959780 864280 2667940 Preliminary Cash Balance ($30,280) $244,940 $796,660 $705,660 Loan Taken 91000 91000 Interest Payments 2730 2730 Loan Repayments 91000 91000 Ending Cash Balance $60,720 $244,940 $702,930 $702,930 Bling Inc Income Statement April May June Total Sales 1072000 1632000 832000 3536000 Less : Cost of Goods Sold $335,000 $510,000 $260,000 $1,105,000 Gross Profit $737,000 $1,122,000 $572,000 $2,431,000 Less : Expenses Sales Comission (4% of sales) 42880 65280 33280 141440 Advertising 300000 300000 300000 900000 Rent 28000 28000 28000 84000 Salaries 126000 126000 126000 378000 Utilities 12000 12000 12000 36000 Depreciation $24,000 $24,000 $24,000 $72,000 Insurance $4,000 $4,000 $4,000 $12,000 Interest 2730 2730 Total Expenses 536880 559280 530010 1626170 Net Income $200,120 $562,720 $41,990 $804,830 Less : Dividends $22,500 $22,500 $782,330 Bling Inc Balance Sheet ASSETS Current Assets Cash $702,930 Accounts Receivable 828800 Inventory 64000 Prepaid Insurance 14000 Total Current Assets $1,609,730 Property and Equipment $1,050,000 Add : New Purchase $71,000 Less : Depreciation $72,000 $1,049,000 Total Assets $2,658,730 LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities Accounts Payable 110000 Dividend Payable 22500 132500 Common Stock 1000000 Retained Earnings 743900+782330 1526230 Total Liabilities and Shareholders Equity 2658730
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