Completing a Master Budget

PROBLEM 10-28 Completing a Master Budget (LO4a, LO4c, LO4f, LO4g, LO4h, LO4i)

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter.

a.      As of December 31 9the end of the prior quarter), the company’s general ledger showed the following account balances:

Debits                   Credits Cash……………………………………………..           $ 48,000 Account receivable………………………           224,000 Inventory…………………………………….            60,000 Buildings and equipment (net)……            370,000 Account 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 month 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 payment on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credir sales.

d.      The company’s gross margin is 40% of sale(in other words, cost of goods sold is 60% of sale).

e.       Monthly expense are budgeted as follows; salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; other expense, 3% of sales. Depreciation, including depreciations on new assets acquired during the quarter, will be $42,000 for the quarter. 

f.        ………………………

1.        

	January	February	March	Quarter
Cash Sales	$    80,000	$   120,000	$     60,000	$     260,000
Credit Sales	224,000	320,000	480,000	1,024,000
Total Cash Collections	$  304,000	$  440,000	$  540,000	$ 1,284,000

2.      a.

	January	February	March	Quarter
Budget Cost of Goods Sold	$ 240,000	$ 360,000	$ 180,000	$ 780,000
Add Desired Ending Inventory	90,000	45,000	30,000	30,000
Total Needs	$ 330,000	$ 405,000	$ 210,000	$ 810,000
Less Beginning Inventory	(60,000)	(90,000)	( 45,000)	(60,000)
Required Purchases	$ 270,000	$ 315,000	$  165,000	$ 750,000
For January Sales: $400,000 × 60%  cost ratio = $240,000
At January 31: $360,000 × 25%    = $90,000. At March 31: $200,000
April Sales×60% cost Ratio×25%  = $30,000

b.

	January	February	March	Quarter
December
Purchase	$    93,000			$    93,000
January Purchases	135,000	$ 135,000		270,000
February Purchase		157,500	$  157,500	315,000
March Purchases			82,500	82,500
Total Cash
Disbursement for Purchases	$  228,000	$ 292,500	$  240,000	$   760,500

3.       

	January	February	March	Quarter
Salaries and Wages…………………….	$ 27,000	$  27,000	$  27,000	$  81,000
Advertising…………………………….	70,000	70,000	70,000	210,000
Shipping………………………………..	20,000	30,000	15,000	65,000
Other Expenses…………………………	12,000	18,000	9,000	39,000
Total Cash Disbursment for Selling and
Administrative Expenses……………….	$ 129,000	$ 145,000	$ 121,000	$ 395,000

4.        

	January	February	March	Quarter
Cash Balance Beginning	$     48,000	$    30,000	$     30,800	$     48,000
Add Cash Collections	304,000	440,000	540,000	1,284,000
Total Cash Available	$  352,000	$ 470,000	$  570,800	$1,332,000
Less Cash Disburtments:
Inventory Purchases	$  228,000	$ 292,500	$   240,000	$   760,500
Selling and Administrative Expenses	129,000	145,000	121,000	395,000
Equipment Purchases	0	1,700	84,500	86,200
Cash Dividens	45,000	0	..	45,000
Total Cash Disbursement	$  402,000	$ 439,200	$  445,500	$1,286,700
Excess (deficiency) of cash	$  (50,000)	$   30,800	125,300	45,300
Financing:
Borrowings	$    80,000	0	$        0	$ 80,000
Repayments	0	0	80,000	80,000
Interest  (80,000   1%  3	0	0	2,400	2,400
Total Financing	$    80,000	0	$    82,400	$      2,400
Cash Balance, Ending	$    30,000	$   30,800	$   42,900	$    42,900

5.        

Hillyard Company

Income Statement

For the Quarter Ended March 31

Sales		$ 1,300,000
Cost Of Goods Sold:	$     60,000
Beginning Inventory	750,000
Add Purchase  (Part 2)	810,000
Goods Available for Sale	30,000	780,000
Ending Inventory		$  520,000
Gross Margin
Selling and Administrative Expenses:
Salaries and Wages (Part 3)	$    81,000
Advertising (Part 3)	210,000
Shipping (Part 3)	65,000
Depreciation (Part 3)	42,000
Other Expenses (Part 3)	39,000	437,000
Net Operating Income		$    83,000
Interest Expenses (Part 4)		2,400
Net Income		$    80,600

6.        

Hillyard Company

Balance Sheet

March 31

Assets

Current Assets:
Cash (Laporan 4)		$      42,900
Accounts Receivable  (80% ×   300,000)		240,000
Inventory (Laporan 2)		30,000
Total Current Assets		312,900
Buildings and Equipment, Net
(370,000 + 86,200 - 42,000		414,200
Total Assets		$    727,100
Liabilities and Equity
Current Liabilities
Accounts Payable (Lap. 2: 50% × 165,000)…..		$      82,500
StockHolder's Equity:
Capital Stock..............	$ 500,000
Retained Earnings…..	144,600	644,600
Total Liabilities and Equity…..		$    727,100
Retained Earnings, Beginning………...	$ 109,000
Add net Income…………………	80,600
Total……………	189,600
Deduct cash Devidends………	45,000
Reatined Earnings, ending……	$ 144,600

ex.

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