Nordic Company, a merchandising company, prepares its master budget on a quarter

Question

Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The

following data have been assembled to assist in preparation of the master budget for the second quarter.

As of March 31 (the end of the prior quarter). the company's balance sheet showed the following account

balances:

Actual sales for march and budgeted sales for april-july are as follows:

april

Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in t he month

following the sale. The accounts receivable at March 31 are a result of March credit sales.

The company's gross margin percentage is 40% of sales. (In other words. cost of goods sold is 60% of

sales.)

Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $7,500 per month; shipping, 6% of sales; advertising, $6,000 per month; other expenses. 4% of sales. Depreciation. including depreciation on new assets acquired during the quarter, will be $6,000 for the quarter.

Each month's ending inventory should equal 30% of the following month's cost of goods sold.

Half of a month's inventory purchases are paid for in the month of purchase and half in the following

month.

Equipment purchases during the quarter will be as follows: April. $11,500: and May. $3,000.

Dividends totaling $3,500 will be declared and paid in June.

Management wants to maintain a minimum cash balance of $8,000.The company has an agreement with a local bank that allows the company to borrow in increments of $1.000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded.

The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter

Required:

Using the data above, complete the following statements and schedules for the second quarter:   

total

Where the budgeted cost of goods sold for april is 70,000 sales multipled by 60% giving you 42,000 and then for may is 51,000 multiplied by 30% giving you 15,300.

part B includes a schedule of expected cash disbursements for merchandise purchases:

18,300

I need help completing these two tables.

cash 9,000 accounts receivable 48,000 inventory 12,600 buildings and equipment (net) 214,100 accounts payable 18,300 capital stock 190,000 retained earnings 75,400 283,700 283,700

Explanation / Answer

Solution:

April May June Total Sales          70,000          85,000          90,000          245,000 Budgeted cost of Goods sold          42,000          51,000          54,000          147,000 Add: Desired ending inventory          15,300          16,200            9,000            40,500 Total need          57,300          67,200          63,000          187,500 Less: Beginning invemtory          12,600          15,300          16,200            44,100 Required purchases          44,700          51,900          46,800          143,400 April May June Total For march purchases          18,000 -   -              18,000 For April purchases          22,350          22,350 -              44,700 For may purchases -            25,950          25,950            51,900 For june purchases -   -            23,400            23,400 Total cash disbursements          40,350          48,300          49,350          138,000

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