1.Aztec Company sells its product for $160 per unit. Its actual and projected sa
ID: 2418232 • Letter: 1
Question
1.Aztec Company sells its product for $160 per unit. Its actual and projected sales follow.
Units
Dollars
April (actual)
10,000
$1,600,000
May (actual)
2,600
416,000
June (budgeted)
7,000
1,120,000
July (budgeted)
5,500
880,000
August (budgeted)
4,200
672,000
All sales are on credit. Recent experience shows that 28% of credit sales is collected in the month of the sale, 42% in the month after the sale, 26% in the second month after the sale, and 4% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 13 days. Thus, 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 21% of the next month’s unit sales plus a safety stock of 75 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,764,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $140,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $140,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 14% interest rate. On May 31, the loan balance is $33,500, and the company’s cash balance is $140,000. (Round final answers to the nearest whole dollar.)
2. Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.
DIMSDALE SPORTS COMPANY
Estimated Balance Sheet
December 31, 2013
Assets
Cash
$
36,000
Accounts receivable
520,000
Inventory
105,000
Total current assets
661,000
Equipment
$
544,000
Less accumulated depreciation
68,000
Equipment, net
476,000
Total assets
$
1,137,000
Liabilities and Equity
Accounts payable
$
350,000
Bank loan payable
15,000
Taxes payable (due 3/15/2014)
89,000
Total liabilities
$
454,000
Common stock
471,500
Retained earnings
211,500
Total stockholders’ equity
683,000
Total liabilities and equity
$
1,137,000
To prepare a master budget for January, February, and March of 2014, management gathers the following information.
a.
Dimsdale Sports’ single product is purchased for $20 per unit and resold for $53 per unit. The expected inventory level of 5,250 units on December 31, 2013, is more than management’s desired level for 2014, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,250 units; February, 9,100 units; March, 11,250 units; and April, 9,500 units.
b.
Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 59% is collected in the first month after the month of sale and 41% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $130,000 is collected in January and the remaining $390,000 is collected in February.
c.
Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2013, accounts payable balance, $75,000 is paid in January and the remaining $275,000 is paid in February.
d.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year.
e.
General and administrative salaries are $132,000 per year. Maintenance expense equals $1,900 per month and is paid in cash.
f.
Equipment reported in the December 31, 2013, balance sheet was purchased in January 2013. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $36,000; February, $97,000; and March, $30,000. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month’s depreciation is taken for the month in which equipment is purchased.
g.
The company plans to acquire land at the end of March at a cost of $175,000, which will be paid with cash on the last day of the month.
h.
Dimsdale Sports has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $21,950 in each month.
i.
The income tax rate for the company is 41%. Income taxes on the first quarter’s income will not be paid until April 15.
Required:
Prepare a master budget for each of the first three months of 2014; include the following component budgets:
1.Aztec Company sells its product for $160 per unit. Its actual and projected sales follow.
Explanation / Answer
Master Budget for Dimsdale Sports Company.
Purchase Budget: January February March Total Sales in units 7,250 9,100 11,250 27,600 Add: Desired Ending inventory 1820 2250 1900 1900 Units required 9,070 11,350 13,150 Less: Opening inventory 5,250 1820 2250 5,250 Units required to purchase 3,820 9,530 10,900 Purchase Payment Budget: January February March Total Purchase in Dollars 76400 190600 218000 Payment for Account Payable 75,000 275,000 0 350,000 Payment for January Purchase 0 15280 61120 76400 Payment for February Purchase 0 0 38120 38120 Payment for March Purchase 0 0 0 0 Total 75,000 290,280 99,240 464,520 Sales Collection Budget: January February March Total Sales in Dollars 384250 482300 596250 1462800 Collection for accounts receivable 130,000 390,000 0 520,000 Collection for January 76850 181366 126034 384250 Collection for February 0 96460 227645.6 324105.6 Collection for March 0 0 119250 119250 591100 1150126 1069180Related Questions
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