Master Budget with Supporting SchedulesYou have just been hired as a management trainee by Cravat Sales Company, a nationwide distributer ofa designer’s silk ties. The company has an extensive franchise in the distribution of the ties, and saleshave grown so rapidly over the last few years that it has become necessary to add new members to themanagement team. You have been given responsibility for all planning and budgeting. Your firstassignment is to prepare a master budget for the next three months, starting April 1st. You are anxious tomake favorable impression on the president and have assembled the information below.The company desires to maintain a minimum ending cash balance each month of $10,000. The ties aresold to retailers for $9.00 each. Recent and forecasted sales in units are as follows:Month Units Month UnitsJanuary Actual 20,000 June 60,000February Actual 24,000 July 40,000March Actual 28,000 August 35,000April 35,000 September 30,000May 42,500 October 30,000The large buildup in sales before and during June is due to Father’s Day. Ending inventories aresupposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.Purchases are paid for as follows: 55% in the month of purchase and the remaining 45% in the followingmonth.All sales are on credit, with no discount, and payable within 15 days. The company has found, however,that only 30% of a month’s sales are collected by month-end. An additional 50% is collected in thefollowing month, and the remaining 20% is collected in the second month following sale. Bad debts havebeen negligibleThe company’s monthly selling and administrative expenses are given below:Variable:Sales Commissions $1.00 for each unit (tie) soldFixed:Wages and Salaries $30,000Utilities $14,000Insurance $ 1,200Depreciation $ 1,500Miscellaneous $ 4,000All selling and administrative expenses are paid during the month, in cash, with the exception ofdepreciation and insurance expired. New fixtures will be purchased during May for $52,000 cash. Thecompany declares dividends of $12,000 per quarter, payable in the first month following quarter end. Thecompany follows calendar quarters.The company has an agreement with a bank that allows it to borrow in increments of $1,000 at thebeginning of each month, up to a total loan balance of $150,000. The interest rate on these loans is 12%per annum, and for simplicity, we will assume that interest is not compounded. On the last day of eachcalendar quarter, the company must pay the bank all of the accumulated interest on the loan and asmuch of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.The company’s balance sheet at March 31st is shown below:Required:Prepare a master budget for the three-month period ending June 30th. Include the following detailedbudgets / schedules:1) A. Sales budget by Month with a total for the period.B. Schedule of expected cash collections from sales, by month and a total for the quarter.C. Merchandise purchases budget in units and in dollars. Show the budget by month and in total.D. Schedule of expected cash disbursements for merchandise purchases, by month and in total.2) A cash budget, show the budget by month and in total for the quarter.
You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributer of
a designer’s silk ties. The company has an extensive franchise in the distribution of the ties, and sales
have grown so rapidly over the last few years that it has become necessary to add new members to the
management team. You have been given responsibility for all planning and budgeting. Your first
assignment is to prepare a master budget for the next three months, starting April 1st. You are anxious to
make favorable impression on the president and have assembled the information below.
The company desires to maintain a minimum ending cash balance each month of $10,000. The ties are
sold to retailers for $9.00 each. Recent and
Month Units Month Units
January Actual 20,000 June 60,000
February Actual 24,000 July 40,000
March Actual 28,000 August 35,000
April 35,000 September 30,000
May 42,500 October 30,000
The large buildup in sales before and during June is due to Father’s Day. Ending inventories are
supposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.
Purchases are paid for as follows: 55% in the month of purchase and the remaining 45% in the following
month.
All sales are on credit, with no discount, and payable within 15 days. The company has found, however,
that only 30% of a month’s sales are collected by month-end. An additional 50% is collected in the
following month, and the remaining 20% is collected in the second month following sale.
been negligible
The company’s monthly selling and administrative expenses are given below:
Variable:
Sales Commissions $1.00 for each unit (tie) sold
Fixed:
Wages and Salaries $30,000
Utilities $14,000
Insurance $ 1,200
Depreciation $ 1,500
Miscellaneous $ 4,000
All selling and administrative expenses are paid during the month, in cash, with the exception of
depreciation and insurance expired. New fixtures will be purchased during May for $52,000 cash. The
company declares dividends of $12,000 per quarter, payable in the first month following quarter end. The
company follows calendar quarters.
The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the
beginning of each month, up to a total loan balance of $150,000. The interest rate on these loans is 12%
per annum, and for simplicity, we will assume that interest is not compounded. On the last day of each
calendar quarter, the company must pay the bank all of the accumulated interest on the loan and as
much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.
The company’s balance sheet at March 31st is shown below:
Required:
Prepare a master budget for the three-month period ending June 30th. Include the following detailed
budgets / schedules:
1) A. Sales budget by Month with a total for the period.
B. Schedule of expected cash collections from sales, by month and a total for the quarter.
C. Merchandise purchases budget in units and in dollars. Show the budget by month and in total.
D. Schedule of expected cash disbursements for merchandise purchases, by month and in total.
2) A
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