Budget Problems_7-16A_Problem 7-21A_and Problem 7-22A



Problem 7-16A Preparing a sales budget and schedule of cash receipts

McCarty Pointers Corporation expects to begin operations on January 1,2012; it will operate as a specialty sales company that sells laser pointers over the internet. McCarty expects sales in January 2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent in the month following the sale, and 10 percent in the second month following the sale.


a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly proforma income statement.
c. Prepare a cash receipts schedule for the first quarter 2012.
d. Determine the amount of accounts receivable as March 31, 2012.

Problem 7-21A Preparing budgets with multiple products

Hammond Fruits Corporation wholesales peaches and oranges. Lashanda King is working with the company’s accountant to prepare next year’s budget. Ms. King estimates that sales will increase 5 percent for peaches and 10 percent for oranges. The current year’s sales revenue data follow.( look on the excel spead sheet)

Based on company’s past experience, cost of goods sold is usually 60 percent of sales revenue. Company policy is to keep 10 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (hint: Use cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)


a. Prepare the company ‘s sales budget for the next for each quarter by individual product.
b. If the selling and administrative expenses are estimated to be $700,000, prepare the company’s budgeted annual income statement.
c. Ms. King estimates next year’s ending inventory will be $34,000 for peaches and $56,000 for oranges. Prepare the company’s inventory purchases budgets for the next year showing quarterly figures by product.

Given Data P07-22A:
Part a.
October sales $ 1,20,000
Sales in cash 40%
Sales in accounts receivable 60%
Expected sales growth per month 25%
Part b.
Accounts receivable collected in 100%
month following sales
Part c.
Cost of goods sold as percentage 60%
of sales
Ending inventory – percent of next 10%
month’s cost of goods sold
December estimated ending inventory $ 12,000
Part d.
Accounts payable paid in month 70%
of purchase
Accounts payable paid in month 30%
following purchase
Part e.
Salary expense (fixed) $ 18,000
Sales commissions (percent of sales) 5%
Supplies expense (percent of sales) 2%
Utilities (fixed) $ 1,400
Depreciation on store equipment (fixed) 4,000
Rent (fixed) 4,800
Miscellaneous (fixed) 1,200
Cost of store fixtures 1,64,000
Salvage value – store fixtures 20,000
Useful life (years) – store fixtures 3
Part g.
Borrowing increments $ 1,000
Monthly interest rate 1%
Cash cushion $ 12,000


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