Near the end of 2015, the management of Dimsdale Sports Co., a merchandising com
ID: 2471522 • Letter: N
Question
Near the end of 2015, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015.
To prepare a master budget for January, February, and March of 2016, management gathers the following information.
Dimsdale Sports’ single product is purchased for $20 per unit and resold for $52 per unit. The expected inventory level of 5,500 units on December 31, 2015, is more than management’s desired level for 2016, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 7,000 units; February, 9,250 units; March, 11,500 units; and April, 10,500 units.
Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 61% is collected in the first month after the month of sale and 39% in the second month after the month of sale. For the December 31, 2015, accounts receivable balance, $130,000 is collected in January and the remaining $390,000 is collected in February.
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, 2015, accounts payable balance, $70,000 is paid in January and the remaining $280,000 is paid in February.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $48,000 per year.
General and administrative salaries are $156,000 per year. Maintenance expense equals $1,800 per month and is paid in cash.
Equipment reported in the December 31, 2015, balance sheet was purchased in January 2015. 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, $34,000; February, $95,000; and March, $29,500. 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.
The company plans to acquire land at the end of March at a cost of $160,000, which will be paid with cash on the last day of the month.
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 $45,240 in each month.
The income tax rate for the company is 39%. Income taxes on the first quarter’s income will not be paid until April 15.
Prepare a master budget for each of the first three months of 2016; include the following component budgets:
Monthly merchandise purchases budgets.
February
Monthly general and administrative expense budgets.
Monthly capital expenditures budgets
Monthly cash budgets.
Near the end of 2015, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2015.
Explanation / Answer
Ans-
Dimsdale Sports Co Sales Budget Month Detail Jan Feb Mar Apr Sales Units 7,000 9,250 11,500 10,500 × Price per Unit 52.00 52.00 52.00 52.00 Total Sales 364,000.00 481,000.00 598,000.00 546,000.00 Production Budget Month Detail Jan Feb Mar Apr Sale Units 7,000 9,250 11,500 10,500 Planned ending units (9250*0.2),(11500*0.2),(10500*0.2) 1,850 2,300 2,100 - Beginning units (7000*0.2),(9250*0.2),(11500*0.2) 1,400 1,850 2,300 2,100 Planned production units (Sales units+Planned endingunits -Beginning units) 7,450 9,700 11,300 8,400 Purchases Budget Month Jan Feb Mar Apr Budgeted Material 7,450 9,700 11,300 8,400 × Cost per unit 20.00 20.00 20.00 20.00 Budgeted Material Cost 149,000.00 194,000.00 226,000.00 168,000.00 Selling Expense Budget Month Detail Jan Feb Mar Apr Sales Units 364,000 481,000 598,000 546,000 × Sales commissions (20% of Sales) 72,800.00 96,200.00 119,600.00 109,200.00 Sales commision 72,800.00 96,200.00 119,600.00 109,200.00 Sales salaries (48000/12) 4,000.00 4,000.00 4,000.00 4,000.00 Total 76,800.00 100,200.00 123,600.00 113,200.00 General and Administrative Expense Budget Month Detail Jan Feb Mar Apr General and administrative salaries (156000/12) 13,000 13,000 13,000 13,000 Maintenance expense 1,800.00 1,800.00 1,800.00 1,800.00 Total 14,800.00 14,800.00 14,800.00 14,800.00 Schedule of Expected Cash Payments Month Detail Jan Feb Mar Apr Beginning AP 70,000.00 280,000.00 - - Jan (149000*0)(149000*0.2) - 29,800.00 119,200.00 - Feb (194000*0)(194000*0.2) - - 38,800.00 155,200.00 Mar (226000*0)(226000*0.2) - - 45,200.00 Apr (168000*0) - Total Expected Payments 70,000.00 309,800.00 158,000.00 200,400.00 Schedule of Expected Cash Collections Month Detail Jan Feb Mar Apr Beginning AR 130,000.00 390,000.00 - - Jan (364000*0.25)(364000*0.4575) 91,000.00 166,530.00 106,470.00 - Feb (481000*0.25)(481000*0.4575) - 120,250.00 220,057.50 140,692.50 Mar (598000*0.25)(598000*0.4575) - - 149,500.00 273,585.00 Apr 249,795.00 Total Collections 221,000.00 676,780.00 476,027.50 664,072.50Related Questions
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