Project #18443 - Cost and Managerial Accounting

This is my Homework.

You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer’s silk ties. The company has an exclusive franchise on 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 1. You are anxious to make a favorable impression on the president and have assembled the information below.


 

     The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:


 

       
  January (actual) 25,000     June 67,000  
  February (actual) 33,000     July 47,000  
  March (actual) 35,000     August 40,000  
  April 36,000     September 39,000  
  May 54,000      


 

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: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month’s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.

 
The company’s monthly selling and administrative expenses are given below:


 

 
  Variable:      
     Sales commissions   $ 1   per tie
  Fixed:      
     Wages and salaries $ 22,700    
     Utilities $ 16,900    
     Insurance $ 1,000    
     Depreciation $ 1,500    
     Miscellaneous $ 3,100    


 

     All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $21,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company’s balance sheet at March 31 is given below:


 

     
Assets
  Cash $ 15,000  
  Accounts receivable ($66,000 February sales; $210,000
  March sales)
  276,000  
  Inventory (32,400 units)   162,000  
  Prepaid insurance   12,000  
  Fixed assets, net of depreciation   123,150  
 

  Total assets $ 588,150  
 



Liabilities and Stockholders’ Equity
  Accounts payable $ 89,750  
  Dividends payable   12,000  
  Capital stock   300,000  
  Retained earnings   186,400  
 

  Total liabilities and stockholders’ equity $ 588,150  
 





 

     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 $130,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would 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.


 

Required:
1. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:


 

a. A sales budget by month and in total. (2 marks) (Omit the "$" sign in your response.)


 

Cravat Sales Company
Sales Budget
        April       May       June       Quarter
  Total sales $   $   $   $  


 

b.
 

A schedule of expected cash collections from sales, by month and in total. (8 marks) (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)


 

Cravat Sales Company
Schedule of Expected Cash Collections
         April        May        June        Quarter
  February sales   $     $     $     $  
  March sales                
  April sales                
  May sales                
  June sales                
 







  Total cash collections   $     $     $     $  
 

















 

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.(10 marks) (Input all amounts as positive values. Omit the "$" sign in your response.)


 

Cravat Sales Company
Merchandise Purchases Budget
        April       May       June       Quarter
  Budgeted sales in units  
  :  
  



  Total needs  
  :  
 



  Required unit purchases  
  Unit cost $ $ $ $  
 



  Required dollar purchases $ $ $ $  
 









 

d.

A schedule of expected cash disbursements for merchandise purchases, by month and in total. (6.50 marks) (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)


 

Cravat Sales Company
Budgeted Cash Disbursements for Merchandise Purchases
         April        May        June        Quarter
  March purchases   $     $     $     $  
  April purchases                
  May purchases                
  June purchases                
 







  Total cash payments   $     $     $     $  
 

















 

2.
 

A cash budget. Show the budget by month and in total.(23.50 marks) (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response)


 

Cravat Sales Company
Cash Budget
For the Three Months Ending June 30
         April        May        June         Quarter
  Cash balance, beginning   $     $     $      
  Add receipts from customers                            
  Total cash available                
 







  Less disbursements:                
       Purchase of inventory                
       Sales commissions                
       Salaries and wages                
       Utilities                
       Miscellaneous                
       Dividends paid                
       Land purchases                
 







  Total disbursements                
 







  Excess (deficiency) of receipts over
    disbursements
               
 







  Financing:                
       Borrowings                
       Repayments                
       Interest                
 







 Total financing                
 







  Cash balance, ending   $     $     $     $  
 

















 

3.

 

A budgeted income statement for the three-month period ending June 30. Use the contribution approach. (10 marks) (Input all amounts as positive values. Omit the "$" sign in your response.)


 

Cravat Sales Company
Budgeted Income Statement
For the Three Months Ended June 30
         $  
  Variable expenses:        
          $      
               
 



          
  Fixed expenses:        
               
               
               
               
               
 



          
          
     

         $  
     





 

4. A budgeted balance sheet as of June 30. (12 marks) (Be sure to list the assets and liabilities in order of their liquidity. Omit the "$" sign in your response.)


 

Cravat Sales Company
Budgeted Balance Sheet
June 30
 
Assets
   $  
    
    
    
    
 
  Total assets $  
 

Liabilities and Stockholders’ Equity
   $  
    
    
    
    
 
  Total liabilities and stockholders’ equity $  

Subject Mathematics
Due By (Pacific Time) 12/02/2013 11:59 pm
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