. Identity the problems that exist in Ferguson& Son Manufacturing Company\'s bud
ID: 2600314 • Letter: #
Question
. Identity the problems that exist in Ferguson& Son Manufacturing Company's budgetary con- trol system and explain how the problems are likely to reduce the effectiveness of the system. Explain how Ferguson& Son Manufacturing Company's budgetary control system could be 2. revised to improve its effectiveness. (CMA, adapted CASE 9-29 Master Budget with Supporting Schedules LO 9-2, LO 9-4, LO 9-8, LO 9-9, LO 9-10 You have just been hired as a management trainee by Cravat Sales Company, a nationwide dis tributor of a designer's silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1! You are anxious to make a favorable impression on the president and have assembled the nformation below The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows: February (actual).····· March (actual).... April May 60,000 40,000 36,000 35,000 September . . . 32,000 . 28,000 August 45,000 The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed toe ua 90%of the next month's sales in units. The ties cost the company s each Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The com- pany has found, however, that only25% of a month's sales arecollectedby month-end. An add tional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below: 25 52 Variable: Sales commissions.... $1 per tie Fixed: Wages and salaries.... Utilities Insurance Depreciation $22,000 $1,200 $1,500 $3,000Explanation / Answer
1 (a) Sales budget for the three month period ending June 30 Particulars April May June Total Budgeted sales(Units) 35000 45000 60000 140000 Budgeted Selling Price $ 8 $ 8 $ 8 $ 8 Budgeted sales(Value) $ 280,000 $ 360,000 $ 480,000 $ 1,120,000 (b) A Schedule of Cash Collections for the three month period ending June 30 February March April May June Total Sales $ 192,000 $ 224,000 $ 280,000 $ 360,000 $ 480,000 $ 1,120,000 (24000*8) (28000*8) Credit Sales - 100% of Total sales $ 192,000 $ 224,000 $ 280,000 $ 360,000 $ 480,000 $ 1,120,000 In the month of Sale -25% of Credit sales $ 70,000 $ 90,000 $ 120,000 $ 280,000 (280000*25%) (360000*25%) (480000*25%) In the following month of Sale -50% of Credit sales $ 112,000 $ 140,000 $ 180,000 $ 432,000 (224000*50%) (280000*50%) (360000*50%) In the second month of Sale -25% of Credit sales $ 48,000 $ 56,000 $ 70,000 $ 174,000 (192000*25%) (224000*25%) (280000*25%) Total Cash Collections $ 230,000 $ 286,000 $ 370,000 $ 886,000 ( c) A Merchandise purchases budget in units and in Dollars Particulars February March April May June Total Budgeted Sales (Units) 24000 28000 35000 45000 60000 140000 Add: Budgeted Ending Inventory 21600 25200 40500 54000 36000 36000 (24000*90%) (28000*90%) (45000*90%) (60000*90%) (40000*90%) Less: Budgeted Beginning Inventory 21600 25200 40500 54000 25200 Budgeted Purchases (Units) 31600 50300 58500 42000 150800 Cost per Unit $ 5 $ 5 $ 5 $ 5 $ 5 Budgeted Purchases (Value) $ 158,000 $ 251,500 $ 292,500 $ 210,000 $ 754,000 (d) A Schedule of expected cash disbursements for Merchandise Purchases Particulars March April May June Total Budgeted Purchases (Value) $ 158,000 $ 251,500 $ 292,500 $ 210,000 $ 754,000 Cash Disbursement in the month of Purchase (50%) $ 125,750 $ 146,250 $ 105,000 $ 377,000 Cash Disbursement in the following month of Purchase (50%) $ 79,000 $ 125,750 $ 146,250 $ 351,000 Total Cash Disbursements $ 204,750 $ 272,000 $ 251,250 $ 728,000 2 Cash budget for the three month period ending June 30 April May June Total Beginning Cash Balance $ 14,000 $ 10,250 $ 10,250 $ 14,000 Add: Budgeted cash receipts ( from 1(b) above) $ 230,000 $ 286,000 $ 370,000 $ 886,000 Total Cash available for use $ 244,000 $ 296,250 $ 380,250 $ 900,000 Less: cash disbursements Purchases Paid ( from 1(d) above) $ 204,750 $ 272,000 $ 251,250 $ 728,000 Recurring monthly expenses Paid Sales Commission $ 35,000 $ 45,000 $ 60,000 $ 140,000 (35000*1) (45000*1) (60000*1) Wages and Salaries $ 22,000 $ 22,000 $ 22,000 $ 66,000 Utilities $ 14,000 $ 14,000 $ 14,000 $ 42,000 Miscellaneous $ 3,000 $ 3,000 $ 3,000 $ 9,000 Land $ 25,000 $ 25,000 Dividends paid $ 12,000 $ 12,000 Interest $ 2,090 $ 2,090 (57000*2*1%+95000*1*1%) Total Disbursements $ 290,750 $ 381,000 $ 352,340 $ 1,024,090 Cash Surplus/(deficit) $ (46,750) $ (84,750) $ 27,910 $ (124,090) (Minimum Cash Balance to be maintained - $ 10,000) Borrow $ 57,000 $ 95,000 $ 152,000 (company must borrow in multiples of $1,000) Budgeted Ending Cash Balance $ 10,250 $ 10,250 $ 27,910 $ 27,910 3 Budgeted Income Statement for the three month period ending June 30 Particulars Amount Sales $ 1,120,000 Variable Costs Purchases $ 754,000 Sales Commission $ 140,000 $ 894,000 Contribution $ 226,000 Fixed Costs Wages and Salaries $ 66,000 (22000*3) Utilities $ 42,000 (14000*3) Insurance $ 3,600 (1200*3) Depreciation $ 4,500 (1500*3) Interest $ 2,090 Miscellaneous $ 9,000 (3000*3) $ 127,190 Profit/(Loss) $ 98,810
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.