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The following data relate to the operations of Shilow Company, a wholesale distributor of con-sumer goods:
Current assets as of March 31:
Cash .............................. $8,000
Inventory........................... $36,000
Buildings and equipment, net...........$120,000
Accounts payable ..................... $21,750
Capital stock..........................$150,000
- The gross margin is 25% of sales. b. Actual and budgeted sales data:
March (actual) ...................$50,000
April . . . . . . . . . . . . . . . .$60,000
May ..................................$72,000
June..................................$90,000
July ..................................$48,000
- 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, $2,500 per month; other expenses (excluding
depreciation ), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets). - Equipment costing $1,500 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.
- Complete the following schedule:
Schedule of Expected Cash Collections
April May June Quarter
Cash sales ............$36,000 ------- -------- ---------
Credit sales............ 20,000 -------- -------- ---------
Total collections........$56,000 -------- -------- ---------
- Complete the following:
Merchandise Purchases Budget
April May June Quarter
Budgeted cost of goods sold ...........$45,000* $54,000
Add desired ending inventory.......... 43,200† ------ ------ -------
Total needs............................................. 88,200 ------ -------- --------
Less beginning inventory................... 36,000 ------- ------- --------
Required purchases ............................$52,200 ------- -------- -------
*For April sales: $60,000 sales × 75% cost ratio = $45,000.†$54,000 × 80% = $43,200
Schedule of Expected Cash Disbursements—Merchandise Purchases
April May June Quarter
March purchases...................... $21,750 -------- -------- $21,750
April purchases....................... 26,100 $26,100 -------- 52,200
May purchases........................ ------- ------- -------- -------
June purchases....................... ------ ------- -------- ------
Total disbursements ...............$47,850 -------- ------- -------
3,Complete the following
Cash Budget
April May June Quarter
Beginning cash balance................$8,000 ------- ------- --------
Add cash collections...................56,000 ------- -------- --------
Total cash available ...................64,000 -------- -------- --------
Less cash disbursements:
For inventory....................... 47,850 ------- ------ ------
For expenses....................... 13,300 -------- ----- ------
For equipment ...................... 1,500 -------- ------- -------
Total cash disbursements...............62,650 ------ ------ -------
Excess (deficiency) of cash.............. 1,350 --------- --------- --------
FinancingEtc.
- Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter, for the quarter ended June 30.
- Prepare a
balance sheet as of June 30.
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