Problem 8-24 (Algo) Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8) Sarden Sales, inc., sells garden supplies. Management Is planning its cash needs for the second quarter. The company usually has to porrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following Information nas been assembled to assist In preparing a cash budget for the quarter: a. Budgeted monthly absorption costing Income statements for April-July are: April May $ 650, e00 $ 820,00e $ 530,0ge 574, e00 June July $ 430, eee 301, 000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense Total selling and administrative expenses 455, eee 371,000 195,e00 246, e00 159,800 129, e00 83,e00 192,e00 64, 000 43,000 46, 508 62,400 39,200 41,900 129,5e9 164,480 103,20e 84, 000 Net operating income 65, se0 $ 81,600 $ 55,80e $ 45, eee ncludes $25.000 of depreclation each month. Sales are 20% for cash and 80% on account. Sales on account are collected over a three-month perlod with 10% collected In the month of sale; 70% collected In the first month following the month of sale; and the remalning 20% collected In the second month following the month of sale. February's sales totaled $245,000, and March's sales totaled $260,000. Inventory purchases are pald for within 15 days. Therefore, 50% of a month's Inventory purchases are pald for In the month of purchase. The remaining 50% Is pald In the following month. Accounts payable at March 31 for Inventory purchases during March total $118,300. Each month's ending Inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise Inventory at March 31 Is $91,00. Dividends of $32,000 will be declared and pald In April. Land costing $40,000 will be purchased for cash In May. The cash balance at March 31 Is $54,000; the company must malntaln a cash balance of at least $40,000 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 $200,000. 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.
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.
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