Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-
ID: 2554231 • Letter: P
Question
Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
7,400
19,600
39,000
126,000
23,175
150,000
18,825
The gross margin is 25% of sales.
Actual and budgeted sales data:
Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
Monthly expenses are as follows: commissions, 12% of sales; rent, $2,200 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $945 per month (includes depreciation on new assets).
Equipment costing $1,400 will be purchased for cash in April.
Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. 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 preceding data:
1. Complete the following schedule (Expected Cash Collection):
2. Complete the following (Merchandise Purchase Budget and Schedule of Expected cash disbursments - Merchandise Purchase Budget) :
3. Complete the following cash budget:
4. Prepare an absorption costing income statement for the quarter ended June 30.
Current assets as of March 31: Cash $7,400
Accounts receivable $19,600
Inventory $39,000
Building and equipment, net $126,000
Accounts payable $23,175
Common stock $150,000
Retained earnings $18,825
Explanation / Answer
Schedule of Expected cash Collections april may june Quarter Sales 65000 70000 95000 230000 Cash Sales 60% 39000 42000 57000 138000 Credit sales 40% in next month collection 19600 26000 28000 73600 Total collections 58600 68000 85000 211600 2 Merchandise purchase BUDGET april may june Quarter July Budgeted cost of goods sold (75% of sales) 48750 52500 71250 172500 34500 Add: desired ending inventory (80% of next month) 42000 57000 27600 27600 Total Needs 90750 109500 98850 299100 Less: beginning inventory -39000 -42000 -57000 -57000 required purchases 51750 67500 41850 161100 Schedule of cash disbursements- Merchandise purchases april may june Quarter March purchases 23175 23175 April Purchases (50% in current and balance in next month) 25875 25875 51750 May purchases 33750 33750 67500 June purchases 20925 20925 Total Disbursements 49050 59625 54675 163350 3 SHILOW COMPANY CASH BUDGET april may june Quarter Beginning cash Blance 7400 4650 4225 7400 Add: Collections 58600 68000 85000 211600 Total Cash Available 66000 72650 89225 219000 Less: Cash Disbursements For Inventory 49050 59625 54675 163350 For Expenses (2200+(12%+6%) of sales 13900 14800 19300 48000 For Equipment 1400 0 0 1400 Total Cash Disbursements 64350 74425 73975 212750 Excess / Deficiency of cash 1650 -1775 15250 6250 Financing: Borrowings 3000 6000 9000 repayments 9000 9000 Interest 120 120 Total Financing 3000 6000 -9120 -120 Ending cash Balance 4650 4225 6130 6130 SHIL COMPANY Budgeted Income statement For the quarter ended june 30 Particulars Amount Amount Sales 230000 Less: Beginning inventory 39000 Add: Purchases 161100 Goods available for sale 200100 Less: ending inventory -27600 172500 Gross Margin 57500 Less: selling and administration Commission 27600 Rent 6600 other expenses 13800 Depreciation 2835 Total selling and administrative Expenses 50835 Net operating income 6665 Interest Expenses -120 Net Income 6545 Balance Sheet For month ended, june 30 Assets Amount Amount Current Assets Cash 6130 Accounts receivable 38000 Inventory 27600 Total Current assets 71730 Building and equipment net 124565 Total Assets 196295 Liabilities and Equity Accounts payable 20925 Stockolders equity Capital Stock 150000 Retained Earnings 25370 175370 Total liabilities and Equity 196295
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