Description
You have just been hired into a management position which requires the application of your budgeting skills.
You find out that budgeting has not been a priority of the company and that they have been experiencing cash shortages.
You have contacted various areas on the organization and have accumulated the information below to assist you
in preparing a comprehensive budget.
Following is actual information relates to the operations of a merchandiser named Sled Company, a wholesaler of sleds as of March 31.
Cash
$7,000
Accounts receivable
15,200
Inventory
22,960
Accounts Payable
22,000
Actual and Budgeted sales dollar Data-Sales Budget:
March (actual)
$38,000
April
$41,000
May
$42,000
June
$40,000
July
$43,000
Sales are following type:
65% Cash sales collected in month of sale
35% Credit sales collected in the following month of sale
Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
Cost of goods sold equals
80% of sales price
At the end of each month, inventory is to be on hand equal to
70% of following month’s sales needs, stated at cost.
Inventory purchases are paid
47% in month of purchase
53% in month after purchase
The accounts payable at March 31 are a result of March purchases of inventory.
Monthly expenses are as follows and are paid in the month incurred if it is a cash expense.
Salaries and wages
13% of sales dollar
Rent
$2,500 per month
Other cash expenses
4% of sales dollar
Advertising
$1,000 per month
Depreciation
$900 for April only
Depreciation
$1,000 per the months of May and June
Equipment purchased for cash
in May
$2,000
Required:
See page 362
1. Prepare a Cash Receipts Budget for the quarter ending June 30th, by month and quarter.
You do not need a formal sales budget since the sales budget is above in the data.
2. Prepare a merchandise purchase budget by month and quarter. A merchandiser purchases in dollars.
I have set up a formatted budget for you. You can see how I have made a few minor changes to Schedule 2 on page 356, which is a production budget which we are not preparing.
Make sure you think about the numbers you use in the quarter column.
I am specifically talking about how you handle beginning and ending inventory.
3. Prepare a Selling and Administrative Expense Budget, by month and quarter.
See page 361***
My budget is a little bit different than the one in the text, because I used percentage of sales dollar.
4. Prepare a Cash Disbursements Budget, by month and quarter.
See page 363***
5. Prepare a cash budget showing the months and quarter.
Use the format I have provided on the budget sheet.
Do not worry about a minimum cash balance or financing needs, since we are trying to develop a cash management plan.
6. Based on the quarterly cash budget you prepared, do you have any recommendations
on cash management. Discuss the type of business and the cash flow problems a company in this industry might have.
Type your answer on the budget worksheet , where I have set out the question.
7. Prepare a budgeted income statement for the quarter ending June 30, 20XX.
You do not need to show monthly columns.
I entered Sales for you on the income statement
8. What do you think about the survivability of this business?
9. What if the company finds out the monthly rent will increase to $2,800, what budgets are effected? Why?
What is the New Net income(Loss)?
If you have linked everything correctly, you should only have to change the monthly rent
on this sheet to determine your answer to the questions asked. Please change the rent back to the original amount of 2,500 before you submit.
For each error within
budget
2 pts. for each budget
1 pt.
1 pt.
1 pt.
#1
Sled Company
Cash collections for the quarter ending June 30, 20XX
April
Sales Revenue(Given)
Cash sales collected in month sale
Credit sales Collected in following month
Total Cash receipts
May
June
Quarter
$41,000
$26,650
15,200
$41,850
65%
35%
#2
Sled Company
Merchandise purchase budget
For the quarter ended June 30, 20XX
April
May
June
Quarter
Sled Company
Selling and administrative Expenses Budget
For the quarter ended June 30,20XX
April
May
June
Quarter
Budget Cost of goods sold
Desired Ending inventory
Total needs
Less: Beginning Inventory
Total purchase cost
#3
Sales
Variable selling and admin. expense %
Total variable cash expenses
Fixed Selling and admin. expenses:
Rent
Advertising
Depreciation
Total fixed expenses
Total selling and administrative expenses
17%
#4
Sled Company
Cash Disbursements Budget
For the quarter ended June 30,20XX
April
Cost of Merchandise Purchases(from Schedule 2)
Cash payments for purchases paid in month
Cash payments made in month after purchase
Total Cash payments for merchandise purchased
Other cash disbursements
May
June
Quarter
47%
53%
Total of other cash disbursements
Total cash Disbursements
#5
Sled Company
Cash Budget
For the quarter ended June 30, 20XX
April
May
June
Quarter
Beginning cash
Add: Cash Receipts
Cash Available
Less Cash Disbursements:
Ending cash
6. Based on the quarterly cash budget you prepared, do you have any recommendations
on cash management. Discuss the type of business and the cash flow problems a company in this industry might have.
#7
Sled Company
Budgeted Income Statement
For the quarter ended June 30, 20XX
Sales
Cost of goods sold
Gross margin
Less selling and administrative Expenses
Operating income
123,000
8. What do you think about the survivability of this business?
9. What if the company finds out the monthly rent will increase to $2,800, what budgets are effected? Why?
What is the New Net income(Loss)?
If you have linked everything correctly, you should only have to change the monthly rent
on this sheet to determine your answer to the questions asked. Please change the rent back to the original amount of 2,500 before you submit.
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