Reference no: EM132000680

MANAGERIAL ACCOUNTING QUESTION -

Gentry Sporting Goods has budgeted sales as follows: January of 2015, $250,000; February of 2015, $220,000. Gentry's gross margin (a.k.a. gross profit) percentage is 70 percent of sales. Its policy is to have ending inventory equal to the budgeted sales needs for the following month. Gentry will begin January of 2015 with inventory of $142,000.

Gentry's variable costs (other than cost of goods sold) are 10 percent of sales, and its monthly fixed costs are $22,000 which includes $3,000 of depreciation expense.

Gentry collects 40 percent of its sales revenue in the month of sale and 59 percent in the following month. The remaining one percent is uncollectible (never collected). Gross accounts receivable at the end of December 2014 is $122,000.

Gentry pays for its inventory purchases in the month after the month of purchase. Accounts payable (for inventory purchases) at the end of December 2014 is $180,000. Variable costs (other than cost of goods sold) are paid as incurred. Fixed costs requiring cash disbursements are also paid as incurred. The cash balance at the beginning of January of 2015 is $30,000.

During February of 2015, Gentry plans to declare and pay a cash dividend of $40,000 to its shareholders. In addition, Gentry's property taxes, which total $10,000 for the year are due in quarterly payments on March 15th, June 15th, September 15th, and December 15th.

REQUIRED:

A. Prepare a well labeled and organized Purchases Budget for the month of January 2015. SHOW & LABEL ALL SUPPORTING CALCULATIONS.

B. Prepare a well-labeled and organized Cash Budget for January of 2015. SHOW & LABEL ALL SUPPORTING CALCULATIONS.

C. Assume that Gentry's Cash Budget for February of 2015 indicates that the ending cash balance will be negative (a cash deficiency). Make at least two suggestions as to what Gentry might do to make sure that they have enough cash to pay expenses during February of 2015.