ADMS 3510 Lecture Notes - Kilogram, Budget, Income Statement

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raspberryantelope879

2 May 2013

School

York University

Department

Administrative Studies

Course

ADMS 3510

Professor

Rebecca Jubis

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Document Summary

The term budget is actually a shorthand term to describe several budget documents. All of these documents are combined into a master budget. The master budget contains two classes of budgets. Operating budgets are the individual budgets that are used to prepare the budgeted income statement. These budgets establish goals for the company s sales and production personnel. Budgets are the capital expenditure budget, the cash budget, and the budgeted balance sheet. These budgets focus mainly on the cash resources that are needed to fund expected operations and planned capital expenditures. We will use a case study of hayes company to illustrate the preparing of operating budgets. Hayes manufactures and sells a single product, kitchen-mate. We will prepare the budgets by quarters for the year ending december 31, 2009. Hayes company begins its annual budgeting process on september 1, 2008, and best estimate of sales revenue for the budget period.

Related Questions

bacus Company sells its productfor $220 per unit. Its actual and projected sales follow.

	Units	Dollars
April (actual)	9,500	$2,090,000
May (actual)	2,400	528,000
June (budgeted)	6,000	1,320,000
July (budgeted)	5,500	1,210,000
August(budgeted)	4,000	880,000

All sales are on credit. Recent experience shows that 24% ofcredit sales is collected in the month of the sale, 46% in themonth after the sale, 24% in the second month after the sale, and6% proves to be uncollectible. The productâs purchase price is $110per unit. All purchases are payable within 12 days. Thus, 60% ofpurchases made in a month is paid in that month and the other 40%is paid in the next month. The company has a policy to maintain anending monthly inventory of 20% of the next monthâs unit sales plusa safety stock of 75 units. The April 30 and May 31 actualinventory levels are consistent with this policy. Selling andadministrative expenses for the year are $1,536,000 and are paidevenly throughout the year in cash. The companyâs minimum cashbalance at month-end is $82,000. This minimum is maintained, ifnecessary, by borrowing cash from the bank. If the balance exceeds$82,000, the company repays as much of the loan as it can withoutgoing below the minimum. This type of loan carries an annual 13%interest rate. On May 31, the loan balance is $48,500, and thecompanyâs cash balance is $82,000.

References

Section BreakLearning Objective: 23-C2 Describea master budget and the process of preparing it.

Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.

value:
1.78 points

Required information

Required:
1.	Prepare a table that shows the computation of cash collectionsof its credit sales (accounts receivable) in each of the months ofJune and July. (Omit the "$" & "%" signs in yourresponse.)

Cash collections of credit sales(accounts receivable)

From sales in	Total	%Collected	June	July
April	$	%	$
May
				$
June

July

Total collected			$	$

References

eBook & Resources

WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.

Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.

Check my work

value:
1.78 points

Required information

2.	Prepare a table that shows the computation of budgeted endinginventories (in units) for April, May, June, and July.(Omit the "%" sign in your response.)

Budgeted ending inventories (inunits)

	April	May	June	July
Next monthâsbudgeted sales
Ratio of inventoryto future sales	%	%	%	%

Budgeted âbaseâending inventory
Plus safetystock

Budgeted endinginventory

References

eBook & Resources

WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.

Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.

Check my work

value:
1.78 points

Required information

3.	Prepare the merchandise purchases budget for May, June, andJuly. Report calculations in units and then show the dollar amountof purchases for each month. (Amounts to be deducted shouldbe indicated with a minus sign. Omit the "$" sign in yourresponse.)

ABACUS COMPANY Merchandise Purchases Budgets For May, June, and July
	May	June	July
(Click toselect)Payments on purchasesBudgeted ending inventoryBeginninginventoryBudgeted beginning inventoryBudgeted purchases
(Click toselect)Payments on purchasesAdd: Budgeted salesBudgetedpurchasesDeduct: Budgeted salesBudgeted beginning inventory

Required units ofavailable merchandise
(Click toselect)Budgeted purchases (units)Deduct: Beginning inventoryAdd:Beginning inventoryBudgeted ending inventoryBudgeted sales

(Click toselect)Beginning inventoryBudgeted salesBudgeted beginninginventoryBudgeted purchasesBudgeted ending inventory

(Click toselect)Payments on purchasesBudgeted ending inventoryBeginninginventoryBudgeted salesBudgeted cost per unit	$	$	$
Budgeted cost ofmerchandise purchases	$	$	$

References

eBook & Resources

WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.

Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.

Check my work

value:
1.78 points

Required information

4.	Prepare a table showing the computation of cash payments onproduct purchases for June and July.(Round your answers tothe nearest dollar amount. Omit the "$" & "%" signs in yourresponse.)

Cash payments on productpurchases (for June and July)

From purchasesin	Total	% Paid	June	July
May	$	%	$
June
				$
July

Total Paid			$	$

References

eBook & Resources

WorksheetLearning Objective: 23-C2 Describe amaster budget and the process of preparing it.

Difficulty: HardLearning Objective: 23-P2 Linkboth operating and capital expenditures budgets to budgetedfinancial statements.

Check my work

value:
1.78 points

Required information

Prepare a cash budget for June and July, including any loanactivity and interest expense. Compute the loan balance at the endof each month. (Leave no cells blank - be certain to enter"0" wherever required. Input all amounts as positive values exceptpreliminary cash balance and any repayments to bank which should beindicated by a minus sign. Round intermediate calculations andfinal answers to the nearest dollar amount. Omit the "$" sign inyour response.)

ABACUS COMPANY Cash Budget June and July
	June	July
(Click toselect)Additional loan from bankSelling and administrativeexpensesPayments on purchasesBeginning cash balanceInterestexpense	$	$
(Click toselect)Selling and administrative expensesCash receipts fromcustomersPayments on purchasesInterest expenseAdditional loan frombank

Total availablecash
Cashdisbursements
(Click to select)Payments onpurchasesPreliminary cash balanceCash receipts fromcustomersAdditional loan from bankRepayment of loan to bank
(Click to select)Additional loan frombankRepayment of loan to bankCash receipts fromcustomersPreliminary cash balanceSelling and administrativeexpenses
(Click to select)Cash receipts fromcustomersInterest expensePreliminary cash balanceAdditional loanfrom bankRepayment of loan to bank

Total disbursements

(Click toselect)Payments on purchasesInterest expenseCash receipts fromcustomersPreliminary cash balanceSelling and administrativeexpenses
(Click toselect)Payments on purchasesSelling and administrativeexpensesInterest expenseCash receipts from customersAdditional loanfrom bank
(Click toselect)Cash receipts from customersSelling and administrativeexpensesPayments on purchasesInterest expenseRepayment of loan tobank

(Click toselect)Ending cash balancePayments on purchasesPreliminary cashbalanceEnding loan balanceAdditional loan from bank	$	$

(Click toselect)Ending cash balanceEnding loan balancePayments onpurchasesAdditional loan from bankPreliminary cash balance	$	$

pucelion925

Be noted the required is to June 2016 Not December 2016.

You have just been hired as a new management Accountant by SaudiJewellery, a distributor of earring to various retail outletslocated in shopping malls across the country. In the past, thecompany has done very little in the way of budgeting and at certaintimes of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided toprepare a master budgets for the Fourth quarter of 2016 in order toshow management the benefits that can be gained from an integratedbudgeting program. To this end, you have worked with accounting andother areas to gather the information assembled below.
The company sells many styles of earrings, but all are sold for thesame price- $10 per pair. Actual sales of earrings for the lastthree months and budgeted sales for the next six months follow (inpairs of earrings):

Recent and forecast sales ( in units)

January (actual)... 20,800
February (actual)... 26,000
March (actual)... 40,000
April (budget)... 65,000
May (budget)... 100,000
June (budget)... 50,000

July (budget)... 30,000

August (budget ... 28,000

September (budget) 25,000

The concentration of sales before and during May is due to MothersDay.

The concentration of sales before and during May is due toMother's Day.

Balance sheet at September 30, 2016

Assets Cash 74,000

Accounts receivable 346,000

Inventory 104,000

Prepaid insurance 21,000

Property and equipment (net) 950,000

Total assets $1,495,000

Liabilities and Stockholders' Equity

Accounts payable $100,000

Dividends payable 15,000

Capital stock 800,000

Retained earnings 580.000

Total liabilities & stockholders' equity $1.495.000

All sales are on credit. The collection of sales is asfollows:

20% of a month's sales are collected in the month of sale.

70% is collected in the following month, and the remaining

10% is collected in the second month following sale.

Bad debts have been negligible.

Additional information: Cost to buy a pair of earrings fromsuppliers is S4 Desired ending inventory at the end of each monthis 40% of the cost of goods sold in the following month.

Payment for purchases is as follows:

One-half of a month's purchases is paid for in the month ofpurchase; the other half is paid for in the following month.

Monthly operating expenses for the company are given below:

Variable monthly expenses:

Sales commissions 4% of month's sales paid as incurred

Fixed monthly expenses paid as incurred:

Advertising 200,000

Rent 18,000

Salaries 106,000

Utilities 7,000

Depreciation 14,000

Insurance is paid on an annual basis, in November of each year$36000 was paid on 1st of nov last year (i.e., $3000 permonth).

The company plans to purchase $16,000 in new equipment duringMay and $40,000 in new equipment during June; both purchases willbe for cash

The company declares dividends of $15,000 each quarter, payablein the first month of the following quarter.

The company maintains a minimum cash balance of $50,000. Allborrowing is done at the beginning of a month and any repaymentsare made at the end of a month.

The company has an agreement with a bank that allows the companyto borrow in increments of $1,000 at the beginning of each month.The interest rate on these loans is 1% per month and for simplicitywe will assume that interest is not compounded. At the end of thequarter, the company would pay the bank all of the accumulatedinterest on the loan and as much of the loan as possible (inincrements of $1,000), while still retaining at least $50,000 incash.

Required: Prepare a master budget for the three-month periodending December 31, 016.

Include the following detailed budgets: a. A sales budget, bymonth and in total N b. A schedule of expected cash collectionsfrom sales, by month and in total. c. A merchandise purchasesbudget in units and in dollars. Show the budget by month and intotal. A schedule of expected cash disbursements for merchandisepurchases, by month and in total.

2. A cash budget. Show the budget by month and in total.Determine any borrowing that would be needed to maintain theminimum cash balance of $50,000. 3. A budgeted income statement forthe three-month period ending June 30 2014. Use the contributionapproach.

4. A budgeted balance sheet as of June 30, 2014.

5. Based on the master budget that you prepared for the fourthquarter of 2016, what would you expect the results to be for thefourth quarter of the year.

6: Define strategic plan, long range plan, capital budgets and amaster budget.

7. Briefly explain the major benefits of budgets 8. Explain thepotential problems in implementing budgets g. Differentiate betweenan operating budget and a financial budget.

magentamammoth556

Near the end of 2011, the management of Simid Sports Co, amerchandising company, prepared the following estimated balancesheet
for December 31, 2011

Simid Sports Company
Estimated Balance Sheet
December 31,2011

Assets
Cash $18,000
Accounts Receivable 262,500
Inventory 75,000
Total Current Assets 355,500
Equipment $270,000
Less accumulted depreciation 33,750 236,250
Total Assets $591,750

Liabilities and Equity
Accounts Payable $180,000
Bank loan payable 7,500
Taxes payable (due 33/15/2012) 45,000
Total liabilities $232,500
Common Stock 236,250
Retained Earnings 123,000
Total stockholders equity 359,250
Total liabilities and equity $591,750

To prepare a master budget for January, February and March 2012,management gathers the following information

a. Simid Sprts single product is purchased for $30 per unit andresold for $55 per unit. The expected inventory level of 2,500units on
December 1,2011, is more than management's desired level for 2012,which is 20% of the next months expected sales (in units).Expected
sales are: January, 3,500 units, February, 4,500 units, March,5,000 units, and April, 5,000 units.

b. Cash slaes nd credit sales represent 25% and 75%, respectively,of total sales. Of the credit sales, 60% is collected in the firstmonth after
the month of sale and 40% in the second month, after the month ofsale. For the December 31, 2011, accounts receivable balance,$62,500 is
collected in January and the remaining $200,000 is collected inFebruary.
c. Merchandise purchases are paid for as follows: 20% in the firstmonth after the month of purchase and 80% in the second month afterthe
month of purhase. For the December 31, 201, accounts payablebalance, $40,000 is paid in January and the remaining $140,000 ispaid in
February.

d. Sales commissions equal to 20% of sales ar paid each month.Sales salaries (excluding commissions) are $30,000 per year.

e. general and administrative salaries are $72,000 per year.Maintenance expense equals $1,000 per month and is paid incash.
f. Equipment reported in the December 31, 2011, balance sheet waspurchased January 2011. It is being depreciated over eight yearsunder
the straight-line method with no salvage value. The followingamounts for new equipment purchases are planned in the comingquarter:
January, $18,000, February, $48,000, and March, $14,400. Thisequipment will be depreciated under the straight-line method overeight years
with no salvage value. A full month's deprecation is taken for themonth is which the equipment is purchased.

g. The company plans to acquire land at the end of March at a costof $75,000, which will be paid with cash on the last day of themonth.
h. Simid Sports has a working arrangement with its bank to obtainadditional loans as needed. The interest rate is 12% per year, andinterest is paid at the end of each month-end based on thebeginning balance. Partial or full payments on these loans can bemade on the last day of the month.
The company has agreed to maintain a minimum ending cash balance of$12,500 each month.

i. The income tax rate for the company is 40%. Income taxes on thefirst quarter's income will not be paid until Apri l15.

Required.

Prepare a master budget for each of the first three months of 2012;include the following component budgets (show supportingcalcuations as
needed, and round amounts to the nearest dollar).

1. Monthly sales budgets (showing both budgeted unit sales anddollar sales)
2. Monthly merchandise purchases budget.
3. Monthly selling expense budget.
4. Monthly general and administrative expense budgets.
5. Monthly capitla expenditures budgets.
6. Monthly cash budgets.
7. Budgeted income statement for the entire first quarter (not foreach month)
8. Budget balance sheet as of March 31, 2012.

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ADMS 3510 Lecture Notes - Kilogram, Budget, Income Statement

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