33:010:272 Lecture Notes - Lecture 5: Management Accounting
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You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.
The company sells many styles of earrings, but all are sold for the same priceâ$17 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):
| January (actual) | 23,600 | June (budget) | 53,600 |
| February (actual) | 29,600 | July (budget) | 33,600 |
| March (actual) | 43,600 | August (budget) | 31,600 |
| April (budget) | 68,600 | September (budget) | 28,600 |
| May (budget) | 103,600 | ||
The concentration of sales before and during May is due to Motherâs Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.
Suppliers are paid $5.80 for a pair of earrings. One-half of a monthâs purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a monthâs sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.
Monthly operating expenses for the company are given below:
| Variable: | |||
| Sales commissions | 4 | % of sales | |
| Fixed: | |||
| Advertising | $ | 380,000 | |
| Rent | $ | 36,000 | |
| Salaries | $ | 142,000 | |
| Utilities | $ | 16,000 | |
| Insurance | $ | 4,800 | |
| Depreciation | $ | 32,000 | |
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $25,000 in new equipment during May and $58,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $28,500 each quarter, payable in the first month of the following quarter.
The companyâs balance sheet as of March 31 is given below:
| Assets | ||
| Cash | $ | 92,000 |
| Accounts receivable ($50,320 February sales; $592,960 March sales) | 643,280 | |
| Inventory | 159,152 | |
| Prepaid insurance | 30,000 | |
| Property and equipment (net) | 1,130,000 | |
| Total assets | $ | 2,054,432 |
| Liabilities and Stockholdersâ Equity | ||
| Accounts payable | $ | 118,000 |
| Dividends payable | 28,500 | |
| Common stock | 1,160,000 | |
| Retained earnings | 747,932 | |
| Total liabilities and stockholdersâ equity | $ | 2,054,432 |
The company maintains a minimum cash balance of $68,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $68,000 in cash.
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, 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 the minimum cash balance of $68,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
Prepare a master budget for the three-month period ending June 30 that includes a sales budget, by month and in total.
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Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash collections, by month and in total.
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Prepare a master budget for the three-month period ending June 30 that includes a merchandise purchases budget in units and in dollars. Show the budget by month and in total.
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Prepare a master budget for the three-month period ending June 30 that includes a schedule of expected cash disbursements for merchandise purchases, by month and in total.
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Prepare a master budget for the three-month period ending June 30 that includes a cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $68,000. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
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Prepare a master budget for the three-month period ending June 30 that includes a budgeted income statement for the three-month period ending June 30. Use the contribution approach.
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Prepare a master budget for the three-month period ending June 30 that includes a budgeted balance sheet as of June 30.
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Acct 505 project 1 Managerial Accounting 15th Edition Garrison,Noreen, and Brewer 2014 McGraw-Hill
COURSE PROJECT 1 INSTRUCTIONS
You have just been contracted as a budget consultant by LBJCompany, a distributor of bracelets to various retail outletsacross the country. The company has done very little in the way ofbudgeting and at certain times of the year has experienced ashortage of cash.
You have decided to prepare a cash budget for the upcomingfourth quarter in order to show management the benefits that can begained from proper cash planning. You have worked with accountingand other areas to gather the information assembled below.
The company sells many styles of bracelets, but all are sold forthe same $10 price. Actual sales of bracelets for the last threemonths and budgeted sales for the next six months follow:
July (actual) | 20,000 |
August (actual) | 26,000 |
September (actual) | 40,000 |
October (budget) | 70,000 |
November (budget) | 110,000 |
December (budget) | 60,000 |
January (budget) | 30,000 |
February (budget) | 28,000 |
March(budget) | 25,000 |
The concentration of sales in the fourth quarter is due to theChristmas holiday. Sufficient inventory should be on hand at theend of each month to supply 40% of the bracelets sold in thefollowing month.
Suppliers are paid $4 for each bracelet. Fifty-percent of amonth's purchases is paid for in the month of purchase; the other50% is paid for in the following month. All sales are on creditwith no discounts. The company has found, however, that only 20% ofa month's sales are collected in the month of sale. An additional70% is collected in the following month, and the remaining 10% iscollected in the second month following sale. Bad debts have beennegligible.
Monthly operating expenses for the company are given below:
Variable expenses:
Salescommissions 4% of sales
Fixed expenses:
Advertising $220,000
Rent $20,000
Salaries $110,000
Utilities $10,000
Insurance $5,000
Depreciation $18,000
Insurance is paid on an annual basis, in January of eachyear.
The company plans to purchase $22,000 in new equipment duringOctober and $50,000 in new equipment during November; bothpurchases will be for cash. The company declares dividends of$20,000 each quarter, payable in the first month of the followingquarter.
Other relevant data is given below:
Cash balance as of September 30 $74,000
Inventory balance as of September30 $112,000
Merchandise purchases forSeptember $200,000
The company maintains a minimum cash balance of at least $50,000at the end of each month. All borrowing is done at the beginning ofa month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows the companyto borrow the exact amount needed 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 will pay the bank all of the accrued intereston the loan and as much of the loan as possible while stillretaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period ending December31. Include the following detailed budgets:
1.
a. A sales budget, by monthand in total.
b. A schedule of expectedcash collections from sales, by month and in total.
c. A merchandise purchasesbudget in units and in dollars. Show the budget by month and intotal.
d. A schedule of expectedcash disbursements for merchandise purchases, by month and intotal.
2. A cash budget. Show the budget bymonth and in total. Determine any borrowing that would be needed tomaintain the minimum cash balance of $50,000.
| PROJECT 1 - ExcelTemplate | ||||||
| SALES BUDGET: | ||||||
| October | November | December | Quarter | |||
| Budgeted unit sales | 70,000 | 110,000 | 60,000 | 240,000 | ||
| Selling price per unit | 10 | 10 | 10 | 10 | ||
| Total sales | 700,000 | 1,100,000 | 600,000 | 2,400,000 | ||
| SCHEDULE OF EXPECTED CASHCOLLECTIONS: | ||||||
| October | November | December | Quarter | |||
| August sales | ||||||
| September sales | ||||||
| October sales | ||||||
| November sales | ||||||
| December sales | ||||||
| Total cash collections | ||||||
| MERCHANDISE PURCHASESBUDGET: | ||||||
| October | November | December | Quarter | |||
| Budgeted unit sales | 70,000 | 110,000 | 60,000 | 240,000 | ||
| Add desired endinginventory | ||||||
| Total needs | ||||||
| Less beginning inventory | ||||||
| Required purchases | ||||||
| Cost of purchases @ $4 perunit | ||||||
| BUDGETED CASH DISBURSEMENTSFOR MERCHANDISE PURCHASES: | ||||||
| October | November | December | Quarter | |||
| September purchases | ||||||
| October purchases | ||||||
| November purchases | ||||||
| December purchases | ||||||
| Total cash payments | ||||||
| LBJ COMPANY | ||||||
| CASH BUDGET | ||||||
| FOR THE 3 MONTHS ENDINGDECEMBER 31 | ||||||
| October | November | December | Quarter | |||
| Cash balance | ||||||
| Add collections fromcustomers | ||||||
| Total cash available | ||||||
| Less disbursements | ||||||
| Merchandisepurchases | ||||||
| Advertising | ||||||
| Rent | ||||||
| Salaries | ||||||
| Commissions | ||||||
| Utilities | ||||||
| Equipmentpurchases | ||||||
| Dividendspaid | ||||||
| Total disbursements | ||||||
| Excess (deficiency) ofreceipts | ||||||
| overdisbursements | ||||||
| Financing: | ||||||
| Borrowings | ||||||
| Repayments | ||||||
| Interest | ||||||
| Total financing | ||||||
| Cash balance, ending | ||||||
Acct 505 project 1 Managerial Accounting 15th Edition Garrison,Noreen, and Brewer 2014 McGraw-Hill
COURSE PROJECT 1 INSTRUCTIONS
You have just been contracted as a budget consultant by LBJCompany, a distributor of bracelets to various retail outletsacross the country. The company has done very little in the way ofbudgeting and at certain times of the year has experienced ashortage of cash.
You have decided to prepare a cash budget for the upcomingfourth quarter in order to show management the benefits that can begained from proper cash planning. You have worked with accountingand other areas to gather the information assembled below.
The company sells many styles of bracelets, but all are sold forthe same $10 price. Actual sales of bracelets for the last threemonths and budgeted sales for the next six months follow:
July (actual) | 20,000 |
August (actual) | 26,000 |
September (actual) | 40,000 |
October (budget) | 70,000 |
November (budget) | 110,000 |
December (budget) | 60,000 |
January (budget) | 30,000 |
February (budget) | 28,000 |
March(budget) | 25,000 |
The concentration of sales in the fourth quarter is due to theChristmas holiday. Sufficient inventory should be on hand at theend of each month to supply 40% of the bracelets sold in thefollowing month.
Suppliers are paid $4 for each bracelet. Fifty-percent of amonth's purchases is paid for in the month of purchase; the other50% is paid for in the following month. All sales are on creditwith no discounts. The company has found, however, that only 20% ofa month's sales are collected in the month of sale. An additional70% is collected in the following month, and the remaining 10% iscollected in the second month following sale. Bad debts have beennegligible.
Monthly operating expenses for the company are given below:
Variable expenses:
Salescommissions 4% of sales
Fixed expenses:
Advertising $220,000
Rent $20,000
Salaries $110,000
Utilities $10,000
Insurance $5,000
Depreciation $18,000
Insurance is paid on an annual basis, in January of eachyear.
The company plans to purchase $22,000 in new equipment duringOctober and $50,000 in new equipment during November; bothpurchases will be for cash. The company declares dividends of$20,000 each quarter, payable in the first month of the followingquarter.
Other relevant data is given below:
Cash balance as of September 30 $74,000
Inventory balance as of September30 $112,000
Merchandise purchases forSeptember $200,000
The company maintains a minimum cash balance of at least $50,000at the end of each month. All borrowing is done at the beginning ofa month; any repayments are made at the end of a month.
The company has an agreement with a bank that allows the companyto borrow the exact amount needed 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 will pay the bank all of the accrued intereston the loan and as much of the loan as possible while stillretaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period ending December31. Include the following detailed budgets:
1.
a. A sales budget, by monthand in total.
b. A schedule of expectedcash collections from sales, by month and in total.
c. A merchandise purchasesbudget in units and in dollars. Show the budget by month and intotal.
d. A schedule of expectedcash disbursements for merchandise purchases, by month and intotal.
2. A cash budget. Show the budget bymonth and in total. Determine any borrowing that would be needed tomaintain the minimum cash balance of $50,000.
| BUDGETED CASHDISBURSEMENTS FOR MERCHANDISE PURCHASES: | ||||||
| October | November | December | Quarter | |||
| September purchases | ||||||
| October purchases | ||||||
| November purchases | ||||||
| December purchases | ||||||
| Total cash payments | ||||||
