Near the end of 2013, the management of Dimsdale Sports Co., a merchandising com

Question

Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.

To prepare a master budget for January, February, and March of 2014, management gathers the following information.

Dimsdale Sports’ single product is purchased for $20 per unit and resold for $54 per unit. The expected inventory level of 4,500 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, 7,000 units; February, 8,900 units; March, 10,750 units; and April, 9,500 units.

Cash sales and credit sales represent 30% and 70%, respectively, of total sales. Of the credit sales, 63% is collected in the first month after the month of sale and 37% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 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, 2013, accounts payable balance, $70,000 is paid in January and the remaining $305,000 is paid in February.

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $54,000 per year.

General and administrative salaries are $144,000 per year. Maintenance expense equals $1,800 per month and is paid in cash.

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, $37,000; February, $94,000; and March, $28,500. 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 $145,000, 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 $57,840 in each month.

The income tax rate for the company is 37%. 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 2014; include the following component budgets:

1. MONTHLY SALES BUDGETS

2. MONTHLY MERCHANDISE PURCHASE BUDGETS

3. MONTHLY SELLING EXPENSE BUDGETS

4. MONTHLY GENERAL AND ADMINISTRATIVE EXPENSE BUDGETS

5. MONTHLY CAPITAL EXPENDITURES BUDGET

6. MONTHLY CASH BUDGETS

7. BUDGETED INCOME STATEMENT FOR ENTIRE FIRST QUARTER

8. BUDGETED BALANCE SHEET AS OF MARCH 31ST 2014

Near the end of 2013, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2013.

Explanation / Answer

Monthly Sales Budget 1 January February March Total Expected Qty          7,000                              8,900       10,750          26,650 Sale sprice per unit               54                                   54              54                 54 Total Sales Budget      378,000                          480,600     580,500     1,439,100 Monthly Purchase Budget 2 January February March Total Expected Sale Qty          7,000                              8,900       10,750          26,650 Add :Closing Stock required          1,780                              2,150         1,900            1,900 Less: Opening Stock 4500                              1,780         2,150            4,500 Purchase Qty require          4,280                              9,270       10,500          24,050 Purchase price 20 20 20 20 Purchase Value required        85,600                          185,400     210,000        481,000 Monthly Selling Exenses Budget 3 January February March Total Expected Qty          7,000                              8,900       10,750          26,650 Sale sprice per unit               54                                   54              54                 54 Sales value      378,000                          480,600     580,500     1,439,100 Sales Commisions        75,600                            96,120     116,100        287,820 Sales Salaries 4500 4500 4500 13500 Total Selling Expenses budget        80,100                          100,620     120,600        301,320 Monthly General Administrative Exenses Budget 4 January February March Total Salaries        12,000                            12,000       12,000          36,000 Maintenance          1,800                              1,800         1,800            5,400 Total Monthly Expenses budget        13,800                            13,800       13,800          41,400 Monthly Capital Expenditure Budget 5 January February March Total Purchase of equipment        37,000                            94,000       28,500        159,500 Land Purchase 145000        145,000 Total Monthly Cash expenditure        37,000                            94,000     173,500        304,500 Monthly Depriciation on old equipment          5,656                              5,656         5,656          16,969 Monthly Depriciation on new equipment        385.42                            979.17       296.88            1,661 Monthly Depriciation Expenses     6,041.67                         6,635.42    5,953.13     18,630.21 6 Monthly Cash Budget January February March Total Opening Cash Balance        36,500                            57,840     233,178          36,500 Monthly Collection      238,400                          705,878     483,997     1,428,275 Monthly Payment: Purchase:        70,000                          322,120     105,560        497,680 Selling Expenses        80,100                          100,620     120,600        301,320 Adminstrative Expenses        13,800                            13,800       13,800          41,400 Purchase of Equipment        37,000                            94,000       28,500        159,500 Purchase of Land 145000        145,000 Loan Payable 16000          16,000 Interest On loan 160               160 Income tax 91000          91,000 Cash Balance at end of month        57,840                          233,178     212,715        212,715 Income Statement January February March Total Sales      378,000                          480,600     580,500     1,439,100 Cost of goods Sold      140,000                          178,000     215,000        533,000 Selling Expenses        80,100                          100,620     120,600        301,320 General Administraive expenses        13,800                            13,800       13,800          41,400 Depriciation          6,042                              6,635         5,953          18,630 Interest on loan 160 160 Profit      137,898                          181,545     225,147        544,590 Income tax        51,022                            67,171       83,304        201,498 Profit transferred to reatined earning        86,876                          114,373     141,843        343,092 Balance Sheet For the year ended Dec 2013 Liabilities Amt Assets Amt. Total Amt. Accounts Payable      358,320 Cash     212,715 Taxes Payable      201,498 Account Receivable     530,825 Inventory       38,000 Coommon Stock      473,000 Total Current Assets        781,540 Retained Earning      509,717 Euipment     702,500 Less :Accumulated Dep       86,505 Equipment net        615,995 Land        145,000 1,542,535     1,542,535 Monthly Collection Budget January February March Total Expected Qty          7,000                              8,900       10,750          26,650 Sale sprice per unit               54                                   54              54                 54 Total Sales Budget      378,000                          480,600     580,500     1,439,100 Collected from account receivable      125,000                          395,000        520,000 Collected From January Sales      113,400                          166,698       97,902        378,000 Collected From February Sales                          144,180     211,945        356,125 Collected From March Sales     174,150        174,150 Monthly Collection      238,400                          705,878     483,997     1,428,275 Account receivable For February Sale        124,475 For March Sale        406,350 Total Account recievable        530,825 Monthly Purchase payament Budget January February March Total Expected Qty          4,280                              9,270       10,500          24,050 Purchase price per unit               20                                   20              20                 20 Total Purchase Budget        85,600                          185,400     210,000        481,000 paid from account receivable        70,000                          305,000        375,000 paid From January Purchases                            17,120       68,480          85,600 paid From February Purchases       37,080          37,080 paid From March Purchases                 -   Monthly paid        70,000                          322,120     105,560        497,680 Account payable For February Purchase        148,320 For March Purchase        210,000 Total Account Payable        358,320

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