Acct 2220 Zeigler: Solution to Chp 7 Budget Case Study
Comprehensive Master Budgeting Problem
Acct 2220: Chp 7 Case Study - Workpapers (Pg 1/4)
A. Sales Budget
B. Schedule of Cash Receipts
C. Pro Forma Financial Stmt information
Estimated Sales Growth Rate >>
Sales Budget
10% per month
Jan
100,000
300,000
400,000
Pro Forma
Feb
Mar
Stmt @3/31
110,000 121,000
xxxxxx
330,000 363,000 363,000 (1)
440,000 484,000 1,324,000 (2)
B) SCH OF CASH RECEIPTS
Current Month’s Cash Sales
100,000
+ 100% of Previous Month's A/R
0
Total Budgeted Cash Collections 100,000
110,000 121,000
xxxxxx
300,000 330,000
xxxxxx
410,000 451,000 < To Cash Budget
A) PROJECTED SALES
Cash Sales
Sales on Account
Total Budgeted Sales
(1) Accounts receivable balance on March 31 pro forma balance sheet.
(2) Sales revenue on first quarter pro forma income statement (sum of monthly sales).
D. Inventory Purchases Budget
E. Schedule of Cash Payments for Inventory
F. Pro Forma Financial Stmt Information
** COGS = 60% of Sales
Inventory Purchases Budget
Jan
D) PROJECTED PURCHASES
Budgeted Cost of Goods Sold
Plus Desired Ending Inventory
Total Inventory Needed
Less Beginning Inventory
Required Inventory Purchases
Feb
Mar
Pro Forma
Stmt @3/31
240,000 264,000 290,400 794,400 (3)
66,000 72,600
78,500
78,500 (4)
306,000 336,600 368,900
0 (66,000) (72,600)
306,000 270,600 296,300
E) SCHEDULE OF CASH PAYMENTS FOR INVENTORY PURCHASES
70% of Current Purchases
214,200 189,420 207,410
xxxxxx
30% of Prior Month Purchases
0 91,800
81,180
xxxxxx
Total Purch Cash Payments
214,200 281,220 288,590 88,890 (5)
(3) Cost of goods sold on first quarter pro forma income stmt (sum of three months).
(4) Inventory balance on March 31 pro forma balance sheet.
(5) Accounts payable balance on March 31 pro forma balance sheet ($296,300 * 30%).
Note: *April* COGS (given) = $314,000 * .25 desired end inv = $78,500
Acct 2220: Chp 7 Case Study - Workpapers (Pg 2/4)
G. S&A Expense Budget
H. Schedule of Cash Payments for S&A Expenses
I. Pro Forma Data
GIVEN DATA:
Sales Commissions Percent
Supplies Expense Percent
Equipment Cost (in-place 1/1)
Equipment Salvage Value
Equip Useful Life (in Months)
5% of Sales
2% of Sales
100,000
10,000
120
G) Selling and Administrative (S&A) Expense Budget
Jan
Feb
Mar
Pro Forma
Stmt @3/31
PROJECTED S&A EXPENSES
Salary Expense
24,000 24,000 24,000
Sales Commissions 5% of Sales
20,000 22,000 24,200 24,200 (6)
Supplies Expense 2% of Sales
8,000
8,800 9,680
Utilities (Fixed)
1,400
1,400 1,400
1,400 (7)
Depr on Equipment (per month)
750
750
750
2,250 (8)
Rent (Fixed)
3,600
3,600 3,600
Miscellaneous (Fixed)
900
900
900
S&A Expenses before Interest
58,650 61,450 64,530 184,630 (9)
** Interest expense is computed in the cash budget - see Budget “J”
H) SCHEDULE OF CASH PAYMENTS FOR S&A EXPENSES
Salary Expense
24,000 24,000 24,000
100% Prior Month’s Sales
Commissions
0 20,000 22,000
Supplies Expense
8,000
8,800 9,680
100% Prior Month’s Utilities
0
1,400 1,400
Rent
3,600
3,600 3,600
Miscellaneous
900
900
900
Total Payments for S&A
36,500 58,700 61,580
Expenses
(6) Sales commissions payable balance on March 31 pro forma balance sheet.
(7) Utilities payable balance on March 31 pro forma balance sheet.
(8) Accumulated depreciation balance on March 31 pro forma balance sheet (sum of
monthly amounts).
(9) S&A expense on first quarter pro forma income statement (sum of three months).
Acct 2220: Chp 7 Case Study - Workpapers (Pg 3/4)
J. Cash Budget
K. Pro Forma Cash Flow Data
(J) Cash Budget
Desired Ending Cash Balance 12,000
Interest on Line of Credit
1%/month
Jan
Feb
CASH RECEIPTS
Beginning Cash Balance
0
12,300
Add Cash Receipts
100,000 410,000
Total Cash Available
100,000 422,300
CASH PAYMENTS
For Inventory Purchases
214,200 281,220
For S&A Expenses
36,500
58,700
For Interest Expense*
0
2,630
To Purchase Equipment
100,000
0
Total Budgeted Payments
350,700 342,550
FINANCING ACTIVITIES
Surplus (Shortage)
(250,700) 79,750
Borrow (Repay) in even 1000 263,000 (67,000)
Ending Cash Balance
12,300
12,750
Mar
12,750
451,000
463,750
Pro Forma
Stmt @3/31
961,000 (10)
288,590 784,010 (11)
61,580 156,780 (12)
1,960
4,590 (13)
0
100,000 (14)
352,130
111,620
(99,000)
12,620
97,000 (15)
12,620 (16)
Support Computations below:
* Interest payments: Feb. ($263,000) x .01; Mar. [($263,000 – $67,000) x .01].
(10) Cash receipts from customers—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(11) Cash payments for inventory—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(12) Cash payments for S&A expenses—operating activities on first quarter pro forma
statement of cash flows (sum of monthly amounts).
(13) Cash payments for interest expense--operating activities, first quarter pro forma
statement of cash flows and the income statement (sum of monthly amounts).
(14) Investing activities on first quarter pro forma statement of cash flows. The
investment in center equipment also appears on the March 31 pro forma balance
sheet.
(15) Financing activities, first quarter pro forma statement of cash flows and the
March 31 pro forma balance sheet (sum of monthly amounts).
(16) Cash balance on the March 31 pro forma balance sheet and the last item in the
first quarter pro forma statement of cash flows.
NOTE: COMPLETED SOLUTION THROUGH MARCH 31st. This is a typical
budgetary process involving multiple areas of the business. Planning ahead is key to
obtaining desired results and identifying problems (i.e. bottlenecks) prior to committing
to such an investment. Students will need to do such planning when working with the
upcoming simulation. See me or our GA team with your questions.
Acct 2220: Chp 7 Case Study - Workpapers (Pg 4/4)
Bee Gee Distributors
Pro Forma Income Statement
For the Quarter Ended March 31
Sales Revenue
$ 1,324,000 From: Sales Budget (A)
Cost of Goods Sold
(794,400) From: Purch Budget (D)
Gross Margin
529,600
Selling and Admin. Exp.
(184,630) From: S&A Exp Budget(G)
Operating Income
344,970
Interest Expense
(4,590) From: Cash Budget (J)
Net Income
$ 340,380
Bee Gee Distributors
Pro Forma Balance Sheet
AT March 31
Assets
Cash
Accounts Receivable
Inventory
Equipment
Accum. Depr. Equip.
Total Assets
Data Source:
$ 12,620 Cash Budget (J)
363,000 Sales Budget (A)
78,500 Purch. Budget (D)
$ 100,000
S&A Exp. Budget(G)
(2,250)
97,750 S&A Exp. Budget(G)
$ 551,870
Liabilities
Accounts Payable
Sales Comm. Payable
Utilities Payable
Credit Line (Liability) Payable
Total Liabilities
Equity (No Common Stock here)
Retained Earnings
Total Liabilities and Equity
$
88,890 Purch. Budget (D)
24,200 S&A Exp. Budget(G)
1,400 S&A Exp. Budget(G)
97,000 Cash Budget (J)
211,490
xxxxxxx
$ 340,380 3/31 Ending R/E
$ 551,870
Bee Gee Distributors
Pro Forma Statement of Cash Flows
For the Quarter Ended March 31
Cash Flow From Operating Activities
Cash Receipts from Customers
Cash Payments for Inventory
Cash Payments for S&A Expenses
Cash Payments for Interest Expense
Net Cash Flow from Operating Activities
$
961,000
(784,010)
(156,780)
(4,590)
$
Cash Flow From Investing Activities
Cash Payments to Purchase Equipment
Cash Flow From Financing Activities
Inflow from Borrowing on Line of Credit
Net Change in Cash (Agrees to Balance Sheet??)
15,620
(100,000)
(YES)
$
97,000
12,620