Reference no: EM131539586
Question: Near the end of 2011, the management of Oasis Corp., a merchandising company, prepared the following estimated balance sheet for December 31, 2011.
To prepare a master budget for January, February, and March of 2012, management gathers the following information.
a. Oasis Corp.'s single product is purchased for $10 per unit and resold for $24 per unit. The expected inventory level of 18,000 units on December 31, 2011, is more than management's desired level for 2012, which is 40% of the next month's expected sales (in units). Expected sales are: January, 30,000 units; February, 24,000 units; March, 40,000 units; and April, 50,000 units.
b. Cash sales and credit sales represent 40% and 60%, respectively, of total sales. Of the credit sales, 70% is collected in the first month after the month of sale and 30% in the second month after the month of sale. For the $400,000 accounts receivable balance at December 31, 2011, $280,000 is collected in January 2012 and the remaining $120,000 is collected in February 2012.
c. Merchandise purchases are paid for as follows: 80% in the first month after the month of purchase and 20% in the second month after the month of purchase. For the $300,000 accounts payable balance at December 31, 2011, $240,000 is paid in January 2012 and the remaining $60,000 is paid in February 2012.
d. Sales commissions equal to 10% of sales are paid each month. Sales salaries (excluding commissions) are $288,000 per year.
e. General and administrative salaries are $336,000 per year. Maintenance expense equals $6,000 per month and is paid in cash.
f. Equipment reported in the December 31, 2011, balance sheet was purchased in January 2011. It is being depreciated over 10 years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $240,000; February, $120,000; and March, $96,000. This equipment will be depreciated using the straight-line method over 10 years with no salvage value. A full month's depreciation is taken for the month in which equipment is purchased.
g. The company plans to acquire land at the end of March at a cost of $232,000, which will be paid with cash on the last day of the month.
h. Oasis Corp. has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. Oasis has agreed to maintain a minimum ending cash balance of $160,000 in each month.
i. The income tax rate for the company is 30%. Income taxes on the first quarter's income will not be paid until April 15. Required Prepare a master budget for each of the first three months of 2012; include the following component budgets (show supporting calculations as needed, and round amounts to the nearest dollar):
1. Monthly sales budgets (showing both budgeted unit sales and dollar sales).
2. Monthly merchandise purchases budgets.
3. Monthly selling expense budgets.
4. Monthly general and administrative expense budgets.
5. Monthly capital expenditures budgets.
6. Monthly cash budgets.
7. Budgeted income statement for the entire first quarter (not for each month).
8. Budgeted balance sheet as of March 31, 2012.