Wild Wood Company\'s management asks you to prepare its master budget using the
ID: 2430844 • Letter: W
Question
Wild Wood Company's management asks you to prepare its master budget using the following information. The budget is to cover the months of April, May, & June 2014
Additional Information
a. Sales for March total 10,000 units. Each month's sales are expected to exceed the prior month's results by 5%. The product's selling price is $25 per unit.
b. Company policy calls for a given month's ending inventory to equal 80% of the next month's expected unit sales. The March 31 inventory is 8,400 units, which complies with the policy. The purchase price is $15 per unit.
c. Sales representatives' commissions are 12.5% of sales and are paid in the month of the sales. The sales manager's monthly salary will be $3,500 in April and $4,000 per month thereafter.
d. Monthly general and administrative expenses include $8,000 administrative salaries, $5,000 depreciation, and 0.9% monthly interest on the long-term note payable.
e. The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).
f. All merchandise purchases are on credit, and no payables arise from any other transactions. One month's purchases are fully paid in the next month.
g. The minimum ending cash balance for all months is $50,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each monthend (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.
h. Dividends of $100,000 are to be declared and paid in May.
i. No cash payments for income taxes are to be made during the second calendar quarter. Income taxes will be assessed at 35% in the quarter.
j. Equipment purchases of $55,000 are scheduled for June.
Required
Prepare the following budgets and other financial information as required:
1. Sales budget, including budgeted sales for July.
2. Purchases budget, the budgeted cost of goods sold for each month and quarter, and the cost of the June 30 budgeted inventory.
3. Selling expense budget.
4. General and administrative expense budget.
5. Expected cash receipts from customers and the expected June 30 balance of accounts receivable.
6. Expected cash payments for purchases and the expected June 30 balance of accounts payable.
7. Cash budget.
8. Budgeted income statement.
9. Budgeted statement of retained earnings.
10. Budgeted balance sheet.
Explanation / Answer
WILD WOOD COMPANY Schedule of Sales Budget Month April May June July Sales 10500 11025 11576.25 12155.0625 Unit selling price $ 25.00 $ 25.00 $ 25.00 $ 25.00 Sales Price $ 2,62,500.00 $ 2,75,625.00 $ 2,89,406.25 $ 3,03,876.56 WILD WOOD COMPANY Schedule of expected cash collection Month April May June Quarter Accounts Receivable $ 1,75,000.00 $ 1,75,000.00 April Sales=($262500*30%)in April,($262500*70%) in May $ 78,750.00 $ 1,83,750.00 $ 2,62,500.00 May Sales=($275625*30%)in May,($275625*70%) in June $ 82,687.50 $ 1,92,937.50 $ 2,75,625.00 June Sales=($289406.25*30%) in June $ 86,821.88 $ 86,821.88 Total Cash collection $ 2,53,750.00 $ 2,66,437.50 $ 2,79,759.38 $ 7,99,946.88 WILD WOOD COMPANY Raw Material Purchase Budget Month April May June Quarter Sales (Units) 10500 11025 11576.25 33101.25 Ending Inventory=(11025*80%) in April,(11576.25*80%) in May,(12155.06*80%) in June 8820 9261 9724.05 9724.05 Total Needs 19320 20286 21300.3 42825.3 Less: Beginning Inventory 8400 8820 9261 8400 Purchases 10920 11466 12039.3 34425.3 Purchase price per unit $ 15.00 $ 15.00 $ 15.00 $ 15.00 Total Purchase Price $ 1,63,800.00 $ 1,71,990.00 $ 1,80,589.50 $ 5,16,379.50 WILD WOOD COMPANY Budgeted Cash disbursement of Mercendise Purchase Months April May June Quarter Accounts Payable $ 1,56,000.00 $ 1,56,000.00 April Purchase $ 1,63,800.00 $ 1,63,800.00 May Purchases $ 1,71,990.00 $ 1,71,990.00 Total Cash Payments $ 1,56,000.00 $ 1,63,800.00 $ 1,71,990.00 $ 4,91,790.00 WILD WOOD COMPANY Budget for Total cash disbursement for Selling Expenses Budget Months April May June Quarter Sales Salaries= $ 3,500.00 $ 4,000.00 $ 4,000.00 $ 11,500.00 Sales Commission=(12.5%of Sales) $ 32,812.50 $ 34,453.13 $ 36,175.78 $ 1,03,441.41 Total Selling Expenses $ 36,312.50 $ 38,453.13 $ 40,175.78 $ 1,14,941.41 WILD WOOD COMPANY Budget for Total cash disbursement for Administrative Exp Budget Month April May June Quarter General and Administerative Salaries $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 24,000.00 Depreciation $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 15,000.00 Interest on long term note payable($200000*.9%) $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 5,400.00 Total Administrative Expenses $ 14,800.00 $ 14,800.00 $ 14,800.00 $ 44,400.00 WILD WOOD COMPANY For the three months ending June 3oth Months April May June Quarter Cash Balance $ 50,000.00 $ 89,517.50 $ 50,000.88 $ 50,000.00 Add: Collections from customer $ 2,53,750.00 $ 2,66,437.50 $ 2,79,759.38 $ 7,99,946.88 Total Cash available $ 3,03,750.00 $ 3,55,955.00 $ 3,29,760.25 $ 8,49,946.88 Less: Disbursement Merchandise Purchase $ 1,56,000.00 $ 1,63,800.00 $ 1,71,990.00 $ 4,91,790.00 Sales Salaries $ 3,500.00 $ 4,000.00 $ 4,000.00 $ 11,500.00 Sales Commission $ 32,812.50 $ 34,453.13 $ 36,175.78 $ 1,03,441.41 General & Administrative Exp $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 24,000.00 Interest on long term note payable($200000*.9%) $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 5,400.00 Equipment Purchase $ 55,000.00 $ 55,000.00 Dividend $ 1,00,000.00 $ 1,00,000.00 * Interest on Short term note @1% $ 120.00 $ 60.99 $ 180.99 Total Disbursemnts $ 2,02,232.50 $ 3,12,053.13 $ 2,77,026.77 $ 7,91,312.40 Excess/Deficiency of receipts over $ 1,01,517.50 $ 43,901.88 $ 52,733.48 $ 58,634.48 disbursements Financing: Borrowings $ 6,099.00 $ 6,099.00 Repayments $ (12,000.00) $ (2,732.00) Total Financing $ (12,000.00) $ (2,732.00) $ (14,732.00) Cash Balance ,ending $ 89,517.50 $ 50,000.88 $ 50,001.48 $ 50,001.48 * ($12000*1%) interest for April,($6099*1%) in May WILD WOOD COMPANY Budgeted Income Statement For the three months ended June 30th Sales($262500+$275625+$289406.25) $ 8,27,531.25 Cost of Purchase($126000+$516380-(9724.05*$15) $ 4,96,518.75 Gross Profit($827531.25-$496518.75) $ 3,31,012.50 Other selling & administerative exp Advertising $ 11,500.00 Salaries $ 1,03,441.41 General & Administertive Expenses $ 24,000.00 Depreciation= $ 15,000.00 Interest on long term note payable $ 5,400.00 Interest on Short term loan $ 181.00 $ 1,59,522.41 Net Operating Income $ 1,71,490.09 Income Tax Expense@35% $ 60,021.53 Net Income $ 1,11,468.56 WILD WOOD COMPANY Budgeted Balance Sheet June 30th Assets Cash $ 50,001.48 Accounts Receivable $ 2,02,580.00 Inventory= $ 1,45,860.75 Building & Equipment ,net=($480000+$55000-$90000-$15000) $ 4,30,000.00 Total Assets $ 8,28,442.23 Liabilities and stockholder's equity Accounts Payable $ 1,80,589.50 Short Term Note Payable $ 3,367.00 Income Tax Payable $ 60,021.53 Long Term Note Payable $ 2,00,000.00 Capital Stock $ 2,35,000.00 Retained Earning($138000+$111468.56-$100000) $ 1,49,468.56 Total Liabilities and stockholder's equity $ 8,28,446.59
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