Reference no: EM132552725
Question 1: How to prepare the following budgets with the information given about Company X below?
Schedule of expected cash collections.
Merchandise purchase budget.
Schedule of expected cash disbursements for merchandise purchases.
Schedule of cash disbursements for selling and administration.
Cash budget.
Company X has asked for help preparing its master budget for the third quarter of 2020. At June 30, 2020, the company's general ledger account balances were:
Cash: $ 6,500
Accounts Receivable: $ 35,000
Inventory: $ 18,450
Buildings and Equipment: $ 225,000
Accounts Payable: $ 38,750
Common Shares : $ 200,000
Retained Earnings: $ 39,356
The gross margin is 40% of sales.
Actual sales for June 2020, and budgeted sales for the following four months are as follows:
June $90,00
July $85,000
August $92,000
September $104,000
October $75,000
- 30% of sales are for cash. All payments on credit sales are collected in the month following the sale.
- Each month's ending inventory should equal 25% of the following month's budgeted cost of goods sold.
- 20% of each month's inventory purchases is paid in the month of purchase; the balance due is paid in the following month.
- Monthly cash expenses for selling and administration include commissions of $9,000; rent of $2,500; and other general operating expenses equal to 12% of sales.
- Equipment is scheduled to be purchased for cash in July ($10,000), in August ($35,000), and in September ($3,000).
- Depreciation is calculated quarterly, in the last month of each quarter. For Q3, 2020, total depreciation will be $7,800 and includes depreciation on new assets acquired during the quarter.
- Company X needs to maintain a minimum cash balance of $5,000. An agreement with a local bank allows borrowing at the beginning of each month, up to a total loan balance of $50,000. The interest rate is 4% per month based on the outstanding balance at the end of the month. Interest must be paid at the end of each month on the outstanding balance due. Whenever possible, partial principal repayments will be made.