Near the end of 2013, the management of Dimsdale Sports Co., a merchandising com
ID: 2497816 • Letter: N
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.
Estimated Balance Sheet December 31, 2013
Assets
Cash $36,500
Accounts Receivable $520,000
Inventory $100,000
Current total Assets $656,500
Equipment $536,000
Less accumulated depreciation $67,000
Equipment, net $469,000
Total assets 1,125,500
Liabilities and Equity
Accounts payable 355,000
Bank loan payable 15,000
Taxes are payable (due 3/15/2014) 91,000
Total Liabilities 461,000
Common stock 471,500
Retained earnings 193,000
Total stockholders' equity 664,500
Total liabilities and equity 1,125,500
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 $56 per unit. The expected inventory level of 5,000 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, 6,750 units; February, 9,300 units, March, 10,750 units; and April, 10,000 units.
b. 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.
c. Merchandise purchases are paid as follow: 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, $90,000 is paid in January and the remaining $265,000 is paid in February.
d. Sales commissions equal 20% of sales are paid each month. Sales salaries(excluding commissions) are $72,000 per year.
e. General and administrative salaries are $156,000 per year. Maintenance expense equals $2,000 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, $34,000; February, $95,000; 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 the 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 $39,150 in each month.
i. The income tax rate for the company is 37%. 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:
6. Monthly sales budget.
January- Budgets Unit Sales, Budgeted Unit Price, Budgeted Total Dollars
February- Budgets Unit Sales, Budgeted Unit Price, Budgeted Total Dollars
March - Budgets Unit Sales, Budgeted Unit Price, Budgeted Total Dollars
Totals for the quarter Budgets Unit Sales, Budgeted Unit Price, Budgeted Total Dollars
7. Monthly merchandise purchases budgets.
8. Monthly selling expense budgets.
9. Month general and administrative expense budgets.
10. Monthly capital expenditures budgets.
11. Monthly cash budgets.
12. Budget Income Statement.
13. Budget Balance Sheet.
Merchandise Purchases Budget For January, February, and March 2014 January February March Next months budgeted sales per (units) 9,300 10,750 10,000 Ratio of Inventory to future sales 20% 20% 20% Required units of available merchandise Units to be purchasedExplanation / Answer
6. Monthly sales budget for 1st quarter :
January february march
Budgeted units 6750 9300 10750
budgeted sales price per units $56 $56 $56
Budgeted total Dollar $ 378000 $ 520800 $ 602000
8. Monthly sales expenses budget :
January february march
total budgeted sales $ 378000 $ 520800 $ 602000
sales Commission(20%*sales) $75600 $104160 $120400
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