Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. Thefollowing data have been assembled to assist in preparing the master budget for the first quarter:a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the followingaccount balances:Debits CreditsCash ........................................................... $ 48,000Accounts receivable ................................... 224,000Inventory ...................................................... 60,000Buildings and equipment (net) ..................... 370,000Accounts payable ....................................... $ 93,000Capital stock ............................................... 500,000Retained earnings ....................................... 109,000$702,000 $702,000b. Actual sales for December and budgeted sales for the next four months are as follows:December (actual) ............................ $280,000January ............................................. $400,000February ........................................... $600,000March ................................................ $300,000April .................................................. $200,000c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the monthfollowing sale. The accounts receivable at December 31 are a result of December credit sales.d. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month: advertising, $70,000per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation onnew assets acquired during the quarter, will be $42,000 for the quarter.f. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.g. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paidin the following month.h. During February, the company will purchase a new copy machine for $1,700 cash. During March,other equipment will be purchased for cash at a cost of $84,500.i. During January, the company will declare and pay $45,000 in cash dividends.j. Management wants to maintain a minimum cash balance of $30,000. The company has an agreementwith a local bank that allows the company to borrow in increments of $1,000 at the beginning of eachmonth. The interest rate on these loans is 1% per month and for simplicity we will assume that interestis not compounded. The company would, as far as it is able, repay the loan plus accumulated interestat the end of the quarter.Required:Using the data above, complete the following statements and schedules for the fi rst quarter:1. Schedule of expected cash collections:January February March QuarterCash sales .................................. $ 80,000Credit sales ................................. 224,000Total cash collections ................. $304,000
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
following data have been assembled to assist in preparing the master budget for the first quarter:
a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following
account balances:
Debits Credits
Cash ........................................................... $ 48,000
Accounts receivable ................................... 224,000
Inventory ...................................................... 60,000
Buildings and equipment (net) ..................... 370,000
Accounts payable ....................................... $ 93,000
Capital stock ............................................... 500,000
Retained earnings ....................................... 109,000
$702,000 $702,000
b. Actual sales for December and budgeted sales for the next four months are as follows:
December (actual) ............................ $280,000
January ............................................. $400,000
February ........................................... $600,000
March ................................................ $300,000
April .................................................. $200,000
c. 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.
d. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month: advertising, $70,000
per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on
new assets acquired during the quarter, will be $42,000 for the quarter.
f. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
g. 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.
h. During February, the company will purchase a new copy machine for $1,700 cash. During March,
other equipment will be purchased for cash at a cost of $84,500.
i. During January, the company will declare and pay $45,000 in cash dividends.
j. 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 fi rst quarter:
1. Schedule of expected cash collections:
January February March Quarter
Cash sales .................................. $ 80,000
Credit sales ................................. 224,000
Total cash collections ................. $304,000
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