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ACCT 2302 Managerial Accounting

Master Budget Project

A. Information to be used in preparation of master budget:

Ryan Richards, controller for Grange Retailers, has assembled the following data to assist

in the preparation of a cash budget for the third quarter of 2016:

a. Sales:

May (actual)

$100,000

June (actual)

120,000

July (estimated)

90,000

August (estimated)

100,000

September (estimated)

135,000

October (estimated)

110,000

b. Each month, 30 percent of sales are for cash and 70 percent are on credit. The

collection pattern for credit sales is 20 percent in the month of sale, 50 percent in

the following month, and 30 percent in the second month following the sale.

c. Each month, the ending inventory exactly equals 50 percent of the cost of next

month’s sales. The markup on goods is 25 percent of cost.

d. Inventory purchases are paid for in the month following the purchase.

e. Recurring monthly expenses are as follows:

Salaries and wages

$10,000

Depreciation on plant and equipment

4,000

Utilities

1,000

Other

1,700

f. Property taxes of $15,000 are due and payable on July 15, 2016.

g. Advertising fees of $6,000 must be paid on August 20, 2016.

h. A lease on a new storage facility is scheduled to begin on September 2, 2016.

Monthly payments are $5,000.

i. The company has a policy to maintain a minimum cash balance of $10,000. If

necessary, it will borrow to meet its short-term needs. All borrowing is done at

the beginning of the month. All payments on principal and interest are made at

the end of a month. The annual interest rate is 9 percent. The company must

borrow in multiples of $1,000.

j. A partially completed balance sheet as of June 30, 2016, follows. (Accounts

payable is for inventory purchases only.)

Cash

$ ?

Accounts receivable

?

Inventory

?

Plant and equipment

425,000

Accounts payable

$ ?

Common stock

210,000

Retained earnings

________

268,750

Total

$ ?

$ ?

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2

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B. Requirements

1. Complete the balance sheet given in item j.

2. Prepare a cash budget for each month in the third quarter and for the quarter in

total (the third quarter begins on July 1). Provide a supporting schedule of cash

collections.

3. Prepare a pro-forma balance sheet as of September 30, 2016.

4. Provide 3 different ways in which the company may increase net income. In

fulfilling this requirement, you should use as many concepts from the course as

possible, identify and explain each concept used, and provide pro-forma excel

spreadsheets to support your recommendations

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Jean Keeling
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28 Sep 2019

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** I am mostly interested in the process for the cash budget in question #2. However, I would still like to see how the entire problem works though. I am really struggling with this so please make your steps as simple and easy to follow as possible. Thank you for your time.

ACCT 2302 Managerial Accounting

Master Budget Project

A. Information to be used in preparation of master budget: Ryan Richards, controller for Grange Retailers, has assembled the following data to assist

in the preparation of a cash budget for the third quarter of 2016: a. Sales: May (actual) $100,000 June (actual) 120,000 July (estimated) 90,000 August (estimated) 100,000 September (estimated) 135,000 October (estimated) 110,000

b. Each month, 30 percent of sales are for cash and 70 percent are on credit. The collection pattern for credit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale.

c. Each month, the ending inventory exactly equals 50 percent of the cost of next month’s sales. The markup on goods is 25 percent of cost.

d. Inventory purchases are paid for in the month following the purchase.

e. Recurring monthly expenses are as follows: Salaries and wages $10,000 Depreciation on plant and equipment 4,000 Utilities 1,000 Other 1,700

f. Property taxes of $15,000 are due and payable on July 15, 2016.

g. Advertising fees of $6,000 must be paid on August 20, 2016.

h. A lease on a new storage facility is scheduled to begin on September 2, 2016. Monthly payments are $5,000.

i. The company has a policy to maintain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short-term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000.

j. A partially completed balance sheet as of June 30, 2016, follows. (Accounts payable is for inventory purchases only.) Cash $ ? Accounts receivable ? Inventory ? Plant and equipment 425,000 Accounts payable $ ? Common stock 210,000 Retained earnings ________ 268,750 Total $ ? $ ?

========

========

2

B. Requirements

1. Complete the balance sheet given in item j.

2. Prepare a cash budget for each month in the third quarter and for the quarter in total (the third quarter begins on July 1). Provide a supporting schedule of cash collections.

3. Prepare a pro-forma balance sheet as of September 30, 2016.

4. Provide 3 different ways in which the company may increase net income. In fulfilling this requirement, you should use as many concepts from the course as possible, identify and explain each concept used, and provide pro-forma excel spreadsheets to support your recommendations.

Problem 14-23 Preparing a master budget for retaIL COMPANY WITH NO BEGINNING ACCOUNT BALANCES.

cAMDEN cOMPANY IS A RETAIL COMPANY THAT SPECIALIZES IN SELLING OUTDOOR CAMPING EQUIPMENT. tHE COMPANY IS CONSIDERING OPENING A NEW STORE ON oCTOBER 1. The company president formed a planning committee to prepare a master budget for the first 3 months of operation. As budget coordinator, you have been assigned the following tasks.

Round all computations to the nearest whole dollar.

a. October sales are estimated to be $125,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 8 percent per month. Prepare a sales budget.

b. The comapny expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

c. The cost of goods sold is 60 percent of sales. The company desire to maintain a minimum ending inventory equal to 10 percent of the next month's cost of goods sold. However, ending inventory of December is expected to be $6,000. Assume that all purchases are made on account. Prepare an inventory purchase budget.

d. The comapny pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

e. Budgeted selling and administrative expenses per month follow:

Salary expense (fixed) $9,000

Sales commissions 5% of sales

Supplies expense 2% of sales

Utilities (fixed) $700

Depreciation on store fixtures (fixed)* $2,000

Rent (fixed) $2,400

Miscellaneous (fixed) $600

*The capital expenditures budget indicates that Camden will spend $82,000 on Oct. 1 for store fixtures, which are expected to have a $10,000 salvage value and a three-year (36 month) useful life.

Use this information to prepare a selling and administrative expenses budget.

f. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for the selling & administrative expenses.

g. Camden borrows funds, in increments of $1,000 and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. Ot pays interest of 1 percent per month in cash on the lst day of the month. To be prudent, the company desire to maintain a $6,000 cash cushion. Prepare a cash budget.

h.Prepare a pro forma income statement for the quarter.

i.Prepare a pro forma balance sheet at the end of the quarter.

Prepare a pro forma statement of cash flows for the quarter.

j.

Morganton Company makes one product and it provided the following information to help prepare the master budget for its first four months of operations: a. The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 9,500, 26,000, 28,000, and 29,000 units, respectively. All sales are on credit. b. Forty percent of credit sales are collected in the month of the sale and 60% in the following month. c. The ending finished goods inventory equals 25% of the following month’s unit sales. d. The ending raw materials inventory equals 15% of the following month’s raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.40 per pound. e. Forty percent of raw materials purchases are paid for in the month of purchase and 60% in the following month. f. The direct labor wage rate is $12 per hour. Each unit of finished goods requires two direct labor-hours. g. The variable selling and administrative expense per unit sold is $1.50. The fixed selling and administrative expense per month is $65,000.

Q: What is the estimated net operating income for July, if the company always uses an estimated predetermined plantwide overhead rate of $8 per direct labor-hour?

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