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Master Budget IN Supplies AND Inventory
accounting 1 (University of Negros Occidental-Recoletos)
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Completing a Master Budget
Hillyard Company, an office supplies specialty store, prepares its master budget
on a quarterly basis. The following data have been assembled to assist in preparing the
master budget for the first quarter:
a. As of December 31 (the end of the prior quarter), the company’s general ledger
showed the following account balances:
Debits
Cash
$
Accounts receivable
Credits
48,000
224,000
Inventory
60,000
Buildings and equipment (net)
370,000
Accounts payable
$ 93,000
Capital stock
500,000
Retained earnings
109,000
$ 702,000
$ 702,000
b. Actual sales for December and budgeted sales for the next four months are as
follows:
December (actual)
$ 280,000
January
$ 400,000
February
$ 600,000
March
$ 300,000
April
$ 200,000
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c. Sales are 20% for cash and 80% on credit. All payments on credit sales are
collected in the month following sale. The accounts receivable at December 31
are a result of December credit sales.
d. The company’s gross margin is 40% of sales. (In other words, the cost of goods
sold is 60% of sales.)
e. Monthly expenses are budgeted as follows: salaries and wages, $27,000 per
month; advertising, $70,000 per month; shipping, 5% of sales; other expenses,
3% of sales. Depreciation, including depreciation on new assets acquired during
the quarter, will be $42,000 for the quarter.
f. Each month’s ending inventory should equal 25% of the following month’s cost
of goods sold.
g. One-half of a month’s inventory purchases is paid for in the month of purchase,
the other half is paid in the following month.
h. During February, the company will purchase a new copy machine for $1,700
cash. During March, other equipment will be purchased for cash at a cost of
$84,500.
i. During January, the company will declare and pay $45,000 in cash dividends.
j. Management wants to maintain a minimum cash balance of $30,000. The
company has an agreement with a local 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. The company, would as far as it is able, repay the loan plus
accumulated interest at the end of the quarter.
Required:
Using the data above, complete the following statements and schedules for the first
quarter:
1. Schedule of expected cash collections:
January
Cash sales
$80,000
Credit sales
224,000
Total cash collections
$304,000
February
March
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Quarter
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Answer:
Hillyard Company
Sales Budget
For the Quarter Ending March 31, 20XX
January
Budgeted Sales in Dollars
Total Budgeted Sales
$ 400,000
February
$ 600,000
March
Quarter
$ 300,000
$ 1,300,000
$ 400,000 $ 600,000 $ 300,000
$
1,300,000
Percentage of sales collected in the period of the sale
20%
Percentage of sales collected in the period after the sale
80%
Hillyard Company
Schedule of Expected Cash Collections
For the Quarter Ending March 31, 20XX
January
Accounts Receivable,
beginning balance
February
March
$ 224,000
January Sales
80,000
February Sales
$
$ 320,000
120,000
224,000
400,000
$ 480,000
600,000
60,000
60,000
$ 304,000 $ 440,000 $ 540,000
$
1,284,000
March Sales
Total Cash Collections
Quarter
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Supporting Computations:
$280,000 x 80% = $ 224,000
$400,000 x 20% = $ 80,000
$400,000 x 80% = $ 320,000
$600,000 x 20% = $ 120,000
$600,000 x 80% = $ 480,000
$300,000 x 20% = $ 60,000
2. a. Merchandise purchases budget:
Budgeted cost of goods sold
January
February
$ 240,000*
$ 360,000
Add desired ending inventory
90,000*
Total needs
$ 330,000
Less beginning inventory
Required purchases
60,000
$ 270,000
*$400,000 sales x 60% cost ratio =
$240,000
*360,000 x 25% = $90,000
Answer:
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March
Quarter
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Hillyard Company
Inventory Purchase Budget
For the Quarter Ending March 31, 20XX
January
Budgeted Cost of Goods Sold
March
Quarter
$ 240,000
$ 360,000
$180,000
$780,000
90,000
45,000
30,000
30,000
$ 330,000
$405,000
$210,000
$810,000
60,000
90,000
45,000
60,000
$ 270,000
$315,000
$165,000
$750,000
Add Desired Ending Inventory
Total Needs
Less Beginning Inventory
Required Inventory
Purchases
February
Supporting Computations:
$400,000 x 60% = $240,000
$600,000 x 60% = $360,000
$300,000 x 60% = $180,000
$360,000 x 25% = $90,000
$180,000 x 25% = $45,000
b. Schedule of expected cash disbursements for merchandise purchases:
January
December purchases
February
$ 93,000
January purchases
135,000
February purchases
—
March purchases
—
March
Quarter
$ 93,000
$ 135,000
Total cash disbursements
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270,000
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to purchases
$ 228,000
Answer:
Hillyard Company
Schedule of Expected Cash Disbursements for Inventory Purchase
For the Quarter Ending March 31, 20XX
January
December Purchases
February
March
$ 93,000
January Purchases
135,000
Quarter
$ 93,000
$ 135,000
February Purchases
157,500
March Purchases
270,000
$ 157,500
315,000
82,500
82,500
Total Cash Disbursements
to Purchases
$ 228,000 $ 292,500 $ 240,000 $ 760,500
Supporting Computations:
$270,000 x 50% = $135,000
$315,000 x 50% = $157,500
$165,000 x 50% = $82,500
3. Schedule of expected cash disbursements for selling and administrative expenses:
January
Salaries and wages
February
$ 27,000
Advertising
70,000
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March
Quarter
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Shipping
20,000
Other expenses
12,000
Total cash disbursements for selling
and administrative expenses
$ 129,000
Answer:
Hillyard Company
Schedule of Expected Cash Disbursements for Selling
and Administrative Expenses
For the Quarter Ending March 31, 20XX
January
Salaries and Wages
February
March
$ 27,000 $ 27,000 $ 27,000
Advertising
Quarter
$
81,000
70,000
70,000
210,000
30,000
15,000
65,000
18,000
9,000
39,000
$
145,000
$
121,000
$
395,000
70,000
Shipping
20,000
Other Expenses
12,000
Total Cash Disbursements for
Selling and Administrative
Expenses
$
129,000
Supporting Computations:
$400,000 x 5% = $ 20,000
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$600,000 x 5% = $ 30,000
$300,000 x 5% = $ 15,000
$400,000 x 3% = $ 12,000
$600,000 x 3% = $ 18,000
$300,000 x 3% = $ 9,000
4. Cash budget:
January
Cash balance, beginning
February
$ 48,000
Add cash collections
304,000
Total cash available
352,000
Less cash disbursements:
Purchases of inventory
228,000
Selling and administrative
expenses
129,000
Purchases of equipment
Cash dividends
—
45,000
Total cash disbursements
402,000
Excess (deficiency) of cash
(50,000)
Financing:
Etc.
Answer:
Hillyard Company
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March
Quarter
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Cash Budget
For the Quarter Ending March 31, 20XX
January
February
$ 48,000
$ 30,000
$ 30,800
304,000
440,000
540,000
1,284,000
$ 352,000
$ 470,000
$ 570,800
$ 1,332,000
$ 228,000
$ 292,500
$ 240,000
$
129,000
145,000
121,000
395,000
0
1,700
84,500
86,200
45,000
0
0
45,000
Total Cash Disbursements
$ 402,000
$ 439,200
$ 445,500
$ 1,286,700
Excess (deficiency) of cash
($ 50,000)
$ 30,800
$ 125,300
$
45,300
$ 80,000
0
$
80,000
Repayments
0
0
($ 80,000)
(80,000)
Interest
0
0
(2,400)
(2,400)
$ 80,000
0
($ 82,400)
(2,400)
$ 30,000 $ 30,800 $ 42,900
$
42,900
Cash Balance, beginning
Add Cash Collections
Total Cash Available
March
Quarter
$
48,000
Less Cash Disbursements:
Inventory Purchase
Selling and
Administrative
Expenses
Equipment Purchase
Cash Dividends
760,500
Financing:
Borrowing
Total Financing
Cash Balance, ending
Supporting Computations:
$80,000 x 3% (3 months) = $2,400
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5. Prepare an absorption costing income statement for the quarter ending March 31 as
shown in Schedule 9 in the chapter.
Answer:
Hillyard Company
Budgeted Income Statement
For the Quarter Ending March 31, 20XX
Sales
$ 1,300,000
Less: Cost of Good Sold
Gross Margin
780,000
$
Less: Selling and Administrative Expenses
395,000
Depreciation Expense
Net Operating Income
42,000
$
Less: Interest Income
Net Income
83,000
2,400
$
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520,000
80,600
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6. Prepare a balance sheet as of March 31.
Answer:
Hillyard Company
Budgeted Balance Sheet
March 31, 20XX
Assets
Current Assets
Cash
$
Accounts Receivable
Inventory
42,900
240,000
30,000
Total Current Assets
$
312,900
Building and Equipment
(Beginning $370,000 + New purchase $86,200 - Accumulated
Depreciation $42,000)
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$ 414,
200
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Total Assets
$
727,100
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable
$ 82,500
Total Liabilities
$
82,500
Stockholders’ Equity
Capital Stock
$ 500,000
Retained Earnings:
Beginning
Add: Net Income
Total
$ 109,000
80,600
$ 189,600
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Less: Cash Dividends
45,000
Total Equity
$
144,600
Total Liabilities and Equity
$
727,100
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