Case Study: Master Budgeting with Supporting Schedule
CASE 8–29 Master Budget with Supporting Schedules
Cravat Sales Company, a nationwide distributor of a designer’s silk ties with an exclusive franchise on the distribution of the ties, and sales have grown rapidly over the last few years. Your have been given responsibility for all planning and budgeting.
Your assignment is to prepare a master budget for the next 3 months, starting April 1st. You are anxious to make a favorable impression on the president and have assembled the information below.
The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:
The large buildup in sales before and during June is due to Father’s Day. Ending inventories are supposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.
Purchases are paid for as follows:
50% in the month of purchase, and the remaining 50% in the following month
All sales are on credit, with no discount, and payable within 15 days, however, only 25% of a month’s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.
The company’s monthly selling and administrative expenses are given below:
Variable monthly expenses: Sales commissions (per unit) $1.00
Fixed monthly expenses: Wages and salaries $22,000.00 Utilities $14,000.00 Insurance $1,200.00 Depreciation $1,500.00 Miscellaneous $3,000.00
All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash.
The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter.
The company’s balance sheet at March 31 is given below:
The company has an agreement with a bank that allows it to borrow in
Cravat Sales Company, a nationwide distributor of a designer’s silk ties with an exclusive franchise on the distribution of the ties, and sales have grown rapidly over the last few years. Your have been given responsibility for all planning and budgeting.
Your assignment is to prepare a master budget for the next 3 months, starting April 1st. You are anxious to make a favorable impression on the president and have assembled the information below.
The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:
The large buildup in sales before and during June is due to Father’s Day. Ending inventories are supposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.
Purchases are paid for as follows:
50% in the month of purchase, and the remaining 50% in the following month
All sales are on credit, with no discount, and payable within 15 days, however, only 25% of a month’s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.
The company’s monthly selling and administrative expenses are given below:
Variable monthly expenses: Sales commissions (per unit) $1.00
Fixed monthly expenses: Wages and salaries $22,000.00 Utilities $14,000.00 Insurance $1,200.00 Depreciation $1,500.00 Miscellaneous $3,000.00
All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash.
The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter.
The company’s balance sheet at March 31 is given below:
The company has an agreement with a bank that allows it to borrow in