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.
