BMAL 530 Homework 6

Description

Question 1

Aztec Company sells its product for $170 per unit. Its actual and budgeted sales follow.

All sales are on credit. Collections are as follows: 26% is collected in the month of the sale, and the remaining 74% is collected in the month following the sale. Merchandise purchases cost $110 per unit. For those purchases, 60% is paid in the month of purchase and the other 40% is paid in the month following purchase. The company has a policy to maintain an ending monthly inventory of 22% of the next month’s unit sales. The May 31 actual inventory level of 990 units is consistent with this policy. Selling and administrative expenses of $112,000 per month are paid in cash. The company’s minimum cash balance at month-end is $120,000. Loans are obtained at the end of any month when the preliminary cash balance is below $120,000. Any preliminary cash balance above $120,000 is used to repay loans at month-end. This loan has a 1.5% monthly interest rate. On May 31, the loan balance is $33,500, and the company’s cash balance is $120,000.

Required:
1. Prepare a schedule of cash receipts from sales for each of the months of June and July.
2. Prepare the merchandise purchases budget for June and July.
3. Prepare a schedule of cash payments for merchandise purchases for June and July. Assume May’s budgeted merchandise purchases is $331,980.
4. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month.

Question 2

Dimsdale Sports, a merchandising company, reports the following balance sheet at December 31.

To prepare a master budget for January, February, and March, use the following information.

1. The company’s single product is purchased for $30 per unit and resold for $57 per unit. The inventory level of 4,500 units on December 31 is more than management’s desired level, which is 20% of the next month’s budgeted sales units. Budgeted sales are January, 6,500 units; February, 8,750 units; March, 11,000 units; and April, 10,500 units. All sales are on credit.
2. Cash receipts from sales are budgeted as follows: January, $249,675; February, $716,650; March, $509,458.
3. Cash payments for merchandise purchases are budgeted as follows: January, $65,000; February, $302,500; March, $145,200.
4. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $6,000 per month.
5. General and administrative salaries are $11,000 per month. Maintenance expense equals $2,200 per month and is paid in cash.
6. New equipment purchases are budgeted as follows: January, $38,400; February, $103,200; and March, $28,800. Budgeted depreciation expense is January, $ 6,400; February, $7,475; and March, $7,775.
7. The company budgets a land purchase at the end of March at a cost of $140,000, which will be paid with cash on the last day of the month.
8. The company has an agreement with its bank to obtain additional loans as needed. The interest rate is 1% per month and interest is paid at each month-end based on the beginning-month balance. Partial or full payments on these loans are made on the last day of the month. The company maintains a minimum ending cash balance of $21,000 at the end of each month.
9. The income tax rate for the company is 41%. Income taxes on the first quarter’s income will not be paid until April 15.

Required:
Prepare a master budget for the months of January, February, and March that has the following budgets:

1. Sales budgets.
   Merchandise purchases budgets.
   3. Selling expense budgets.
   4. General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers.
   5. Capital expenditures budgets.
   6. Cash budgets.
   7. Budgeted income statement for entire quarter (not monthly) ended March 31.
   8. Budgeted balance sheet as of March 31.