The application of your budgeting skills

Data Scenario:

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:

1. Prepare a Cash Receipts Budget for the quarter ending June 30th, by month and quarter. See page 362

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.