Acct 505 project 1 Managerial Accounting 15th EditionGarrison, Noreen, and Brewer 2014 McGraw-Hill
COURSE PROJECT 1INSTRUCTIONS
You have just been contracted as a budget consultant byLBJ Company, a distributor of bracelets to various retail outletsacross the country. The company has done very little in the way ofbudgeting and at certain times of the year has experienced ashortage of cash.
You have decided to prepare a cash budget for theupcoming fourth quarter in order to show management the benefitsthat can be gained from proper cash planning. You have worked withaccounting and other areas to gather the information assembledbelow.
The company sells many styles of bracelets, but all aresold for the same $10 price. Actual sales of bracelets for the lastthree months and budgeted sales for the next six monthsfollow:
July (actual)
20,000
August (actual)
26,000
September (actual)
40,000
October(budget)
70,000
November (budget)
110,000
December (budget)
60,000
January(budget)
30,000
February(budget)
28,000
March(budget)
25,000
The concentration of sales in the fourth quarter is dueto the Christmas holiday. Sufficient inventory should be on hand atthe end of each month to supply 40% of the bracelets sold in thefollowing month.
Suppliers are paid $4 for each bracelet. Fifty-percentof a month's purchases is paid for in the month of purchase; theother 50% is paid for in the following month. All sales are oncredit with no discounts. The company has found, however, that only20% of a month's sales are collected in the month of sale. Anadditional 70% is collected in the following month, and theremaining 10% is collected in the second month following sale. Baddebts have been negligible.
Monthly operating expenses for the company are givenbelow:
Variable expenses:
Salescommissions 4% of sales
Fixed expenses:
Advertising $220,000
Rent $20,000
Salaries $110,000
Utilities $10,000
Insurance $5,000
Depreciation $18,000
Insurance is paid on an annual basis, in January of eachyear.
The company plans to purchase $22,000 in new equipmentduring October and $50,000 in new equipment during November; bothpurchases will be for cash. The company declares dividends of$20,000 each quarter, payable in the first month of the followingquarter.
Other relevant data is given below:
Cash balance as of September 30 $74,000
Inventory balance as of September30 $112,000
Merchandise purchases forSeptember $200,000
The company maintains a minimum cash balance of at least$50,000 at the end of each month. All borrowing is done at thebeginning of a month; any repayments are made at the end of amonth.
The company has an agreement with a bank that allows thecompany to borrow the exact amount needed at the beginning of eachmonth. The interest rate on these loans is 1% per month and forsimplicity we will assume that interest is not compounded. At theend of the quarter, the company will pay the bank all of theaccrued interest on the loan and as much of the loan as possiblewhile still retaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period endingDecember 31. Include the following detailed budgets:
1.
a. A sales budget,by month and in total.
b. A schedule ofexpected cash collections from sales, by month and intotal.
c. A merchandisepurchases budget in units and in dollars. Show the budget by monthand in total.
d. A schedule ofexpected cash disbursements for merchandise purchases, by month andin total.
2. A cash budget. Show thebudget by month and in total. Determine any borrowing that would beneeded to maintain the minimum cash balance of$50,000.
SALESBUDGET: October November December Quarter Budgeted unitsales Selling price perunit Total sales SCHEDULE OF EXPECTEDCASH COLLECTIONS: October November December Quarter August sales Septembersales October sales Novembersales Decembersales Total cashcollections 2,156,000 MERCHANDISE PURCHASESBUDGET: October November December Quarter Budgeted unitsales Add desired endinginventory Total needs Less beginninginventory Requiredpurchases Cost of purchases @ $4per unit BUDGETED CASHDISBURSEMENTS FOR MERCHANDISE PURCHASES: October November December Quarter Septemberpurchases Octoberpurchases Novemberpurchases Decemberpurchases Total cashpayments 900,000 LBJCOMPANY CASHBUDGET FOR THE 3 MONTHSENDING DECEMBER 31 October November December Quarter Cash balance Add collections fromcustomers Total cashavailable Lessdisbursements Merchandise purchases Advertising Rent Salaries Commissions Utilities Equipmentpurchases Dividendspaid Totaldisbursements Excess (deficiency) ofreceipts overdisbursements Financing: Borrowings Repayments Interest Totalfinancing Cash balance,ending 53,920
Acct 505 project 1 Managerial Accounting 15th EditionGarrison, Noreen, and Brewer 2014 McGraw-Hill
COURSE PROJECT 1INSTRUCTIONS
You have just been contracted as a budget consultant byLBJ Company, a distributor of bracelets to various retail outletsacross the country. The company has done very little in the way ofbudgeting and at certain times of the year has experienced ashortage of cash.
You have decided to prepare a cash budget for theupcoming fourth quarter in order to show management the benefitsthat can be gained from proper cash planning. You have worked withaccounting and other areas to gather the information assembledbelow.
The company sells many styles of bracelets, but all aresold for the same $10 price. Actual sales of bracelets for the lastthree months and budgeted sales for the next six monthsfollow:
July (actual) | 20,000 |
August (actual) | 26,000 |
September (actual) | 40,000 |
October(budget) | 70,000 |
November (budget) | 110,000 |
December (budget) | 60,000 |
January(budget) | 30,000 |
February(budget) | 28,000 |
March(budget) | 25,000 |
The concentration of sales in the fourth quarter is dueto the Christmas holiday. Sufficient inventory should be on hand atthe end of each month to supply 40% of the bracelets sold in thefollowing month.
Suppliers are paid $4 for each bracelet. Fifty-percentof a month's purchases is paid for in the month of purchase; theother 50% is paid for in the following month. All sales are oncredit with no discounts. The company has found, however, that only20% of a month's sales are collected in the month of sale. Anadditional 70% is collected in the following month, and theremaining 10% is collected in the second month following sale. Baddebts have been negligible.
Monthly operating expenses for the company are givenbelow:
Variable expenses:
Salescommissions 4% of sales
Fixed expenses:
Advertising $220,000
Rent $20,000
Salaries $110,000
Utilities $10,000
Insurance $5,000
Depreciation $18,000
Insurance is paid on an annual basis, in January of eachyear.
The company plans to purchase $22,000 in new equipmentduring October and $50,000 in new equipment during November; bothpurchases will be for cash. The company declares dividends of$20,000 each quarter, payable in the first month of the followingquarter.
Other relevant data is given below:
Cash balance as of September 30 $74,000
Inventory balance as of September30 $112,000
Merchandise purchases forSeptember $200,000
The company maintains a minimum cash balance of at least$50,000 at the end of each month. All borrowing is done at thebeginning of a month; any repayments are made at the end of amonth.
The company has an agreement with a bank that allows thecompany to borrow the exact amount needed at the beginning of eachmonth. The interest rate on these loans is 1% per month and forsimplicity we will assume that interest is not compounded. At theend of the quarter, the company will pay the bank all of theaccrued interest on the loan and as much of the loan as possiblewhile still retaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period endingDecember 31. Include the following detailed budgets:
1.
a. A sales budget,by month and in total.
b. A schedule ofexpected cash collections from sales, by month and intotal.
c. A merchandisepurchases budget in units and in dollars. Show the budget by monthand in total.
d. A schedule ofexpected cash disbursements for merchandise purchases, by month andin total.
2. A cash budget. Show thebudget by month and in total. Determine any borrowing that would beneeded to maintain the minimum cash balance of$50,000.
SALESBUDGET: | ||||||
October | November | December | Quarter | |||
Budgeted unitsales | ||||||
Selling price perunit | ||||||
Total sales | ||||||
SCHEDULE OF EXPECTEDCASH COLLECTIONS: | ||||||
October | November | December | Quarter | |||
August sales | ||||||
Septembersales | ||||||
October sales | ||||||
Novembersales | ||||||
Decembersales | ||||||
Total cashcollections | 2,156,000 | |||||
MERCHANDISE PURCHASESBUDGET: | ||||||
October | November | December | Quarter | |||
Budgeted unitsales | ||||||
Add desired endinginventory | ||||||
Total needs | ||||||
Less beginninginventory | ||||||
Requiredpurchases | ||||||
Cost of purchases @ $4per unit | ||||||
BUDGETED CASHDISBURSEMENTS FOR MERCHANDISE PURCHASES: | ||||||
October | November | December | Quarter | |||
Septemberpurchases | ||||||
Octoberpurchases | ||||||
Novemberpurchases | ||||||
Decemberpurchases | ||||||
Total cashpayments | 900,000 | |||||
LBJCOMPANY | ||||||
CASHBUDGET | ||||||
FOR THE 3 MONTHSENDING DECEMBER 31 | ||||||
October | November | December | Quarter | |||
Cash balance | ||||||
Add collections fromcustomers | ||||||
Total cashavailable | ||||||
Lessdisbursements | ||||||
Merchandise purchases | ||||||
Advertising | ||||||
Rent | ||||||
Salaries | ||||||
Commissions | ||||||
Utilities | ||||||
Equipmentpurchases | ||||||
Dividendspaid | ||||||
Totaldisbursements | ||||||
Excess (deficiency) ofreceipts | ||||||
overdisbursements | ||||||
Financing: | ||||||
Borrowings | ||||||
Repayments | ||||||
Interest | ||||||
Totalfinancing | ||||||
Cash balance,ending | 53,920 |