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Budget Demo Problem

The document outlines the preparation of a master budget for a merchandising company for the second quarter, detailing account balances, sales forecasts, and expense budgets. Key components include sales and cash collection schedules, merchandise purchases, cash disbursements, and a budgeted income statement and balance sheet. The company aims to maintain a minimum cash balance and has provisions for borrowing if necessary.

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49 views2 pages

Budget Demo Problem

The document outlines the preparation of a master budget for a merchandising company for the second quarter, detailing account balances, sales forecasts, and expense budgets. Key components include sales and cash collection schedules, merchandise purchases, cash disbursements, and a budgeted income statement and balance sheet. The company aims to maintain a minimum cash balance and has provisions for borrowing if necessary.

Uploaded by

deepsb004
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Managerial Accounting

Budgeting Review Question (adapted from Managerial Accounting - Garrison)

A merchandising company prepares its master budget on a quarterly basis. The following data has been
assembled to assist in preparation of the master budget for the second quarter.

a. As of March 31 (the end of the prior quarter), the company’s balance sheet showed the
following account balances:
Cash $ 9,000
Accounts Receivables 48,000
Inventory 12,600
Building & Equipment (net) 214,100
Accounts Payable $18,300
Common Shares 190,000
Retained Earnings 75,400
______________________
$283,700 $283,700
b. Actual sales for March and budgeted sales for April – July are as follows:
March (actual) $60,000
April $70,000
May $85,000
June $90,000
July $50,000
c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the
month following the sale. The Accounts Receivables at march 31 are a result of March credit
sales.
d. The company’s gross margin percentage is 40% of sales.
e. Monthly expenses are budgeted as follows: salaries and wages at $7,500 per month, shipping at
6% of sales, advertising at $6,000 per month, other expenses at 4% of sales. Depreciation,
including depreciation on new assets acquired during the quarter, will be $6,000 per quarter.
f. Each month’s ending inventory should equal 30% of the following month’s cost of goods sold.
g. Half of the month’s inventory purchases are paid for in the month of the purchase and half in
the following month.
h. Equipment purchases during the quarter will be as follows: April $11,500 and May $3,000.
i. Dividends totaling $3,500 will be declared and paid in June.
j. Management wants to maintain a minimum cash balance of $8,000. 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 maximum 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:

1. A) Sales Budget
B) Schedule of expected cash collections.
2. A) Merchandise purchases budget
B) Schedule of cash disbursement for purchases
3. Schedule of cash disbursements for selling and administrative expenses
4. Cash Budget
5. Budgeted Income Statement
6. Budgeted Balance Sheet

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