Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter: As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Cash $ 64,000 Accounts receivable 219,200 Inventory 61,350 Buildings and equipment (net) 374,000 Accounts payable $ 92,325 Common stock 500,000 Retained earnings 126,225 $ 718,550 $ 718,550 Actual sales for December and budgeted sales for the next four months are as follows: December(actual) $ 274,000 January $ 409,000 February $ 606,000 March $ 321,000 April $ 217,000 Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.) Monthly expenses are budgeted as follows: salaries and wages, $39,000 per month: advertising, $57,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,940 for the quarter. Each month’s ending inventory should equal 25% of the following month’s 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 in the following month. During February, the company will purchase a new copy machine for $3,400 cash. During March, other equipment will be purchased for cash at a cost of $82,000. During January, the company will declare and pay $45,000 in cash dividends. Management wants to maintain a minimum cash balance of $30,000. 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. 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 data above, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections: 2-a. Merchandise purchases budget: 2-b. Schedule of expected cash disbursements for merchandise purchases:
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Hillyard Company, an office supplies specialty store, prepares its
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As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:
| Cash | $ 64,000 | |
|---|---|---|
| 219,200 | ||
| Inventory | 61,350 | |
| Buildings and equipment (net) | 374,000 | |
| Accounts payable | $ 92,325 | |
| Common stock | 500,000 | |
| 126,225 | ||
| $ 718,550 | $ 718,550 |
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Actual sales for December and budgeted sales for the next four months are as follows:
| December(actual) |
$ 274,000 |
|---|---|
| January |
$ 409,000 |
| February |
$ 606,000 |
| March |
$ 321,000 |
| April |
$ 217,000 |
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Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.
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The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
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Monthly expenses are budgeted as follows: salaries and wages, $39,000 per month: advertising, $57,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,940 for the quarter.
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Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
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One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
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During February, the company will purchase a new copy machine for $3,400 cash. During March, other equipment will be purchased for cash at a cost of $82,000.
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During January, the company will declare and pay $45,000 in cash dividends.
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Management wants to maintain a minimum cash balance of $30,000. 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. 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 data above, complete the following statements and schedules for the first quarter:
1. Schedule of expected cash collections:
2-a. Merchandise purchases budget:
2-b. Schedule of expected cash disbursements for merchandise purchases:
3.
4. Prepare an absorption costing income statement for the quarter ending March 31.
5. Prepare a balance sheet as of March 31.
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