UYEN DINH Professor: STEPHEN BROWN ACC 2355 _ Managerial Accounting II_ Section 800 MASTER BUDGET ASSIGNMENT The 1 st quarter master budget of Lim Corporation contains the following schedules, which are displayed and explained in the following pages: Schedule Title of Schedule Sales Budget 1 Expected Cash Collection 2 Merchandise Purchasing Budget 3 Cash Disbursement Budget 4 Summary Cash Budget 5 Absorption costing income statement 6 Balance sheet as of March 31
Sales Budget The first step in developing Lim Corporation s 1st quarter master budget is to prepare the sale budget. Let s make assumption that the budget year is 20X1. Following is schedule 1, sale budget of Lim Corporation, based on the data b and c: Sales Budget For the quarter Ending March 31, 20X1 20X0 20X1 (Budgeted Sales) December (Actual) January February March 1 st Quarter April ( 1 ) Total Sales 60000 70000 80000 85000 235000 55000 Cash Sales ( 2 )= 40%*Sales 24000 28000 32000 34000 94000 22000 Credit Sales ( 3 )= 60%*Sales 36000 42000 48000 51000 141000 33000 Schedule 1. Schedule of Expected Cash Collection Also based on the date b and data c, Lim Corporation s cash receipts budget - schedule 1 detailed the expected cash collections during the 1 st quarter: Cash Receipt Budget For the quarter Ending March 31, 20X1 20X1 Cash Collection from: January February March 1 st Quarter ( 4 ) Cash Sales 28000 32000 34000 94000 Credit Sales ( 5 ) 36000 42000 48000 126000 ( 1 ) Quarter = January + February + March (ALWAYS) ( 2 ) Cash Sales = 40%*Sales January: 28000 = 40%*70000 February: 32000 = 40%*80000 ( 3 ) Credit Sales = 60%*Sales January: 42000 = 60%*70000 February: 48000 = 60%*80000 ( 4 ) Quarter = January + February + March ( 5 ) Credit Sales collection = 100% of previous month s credit sales January: 42000 = 60%*70000 February: 48000 = 60%*80000
Total Cash Receipts (Cash Collection) ( 6 ) 64000 74000 82000 220000 Schedule 2. Merchandise Purchasing Budget This budget is based to the data a & d. Merchandise Purchasing Budget For the quarter Ending March 31, 20X1 20X1 January February March 1 st Quarter ( 7 ) Budgeted Cost of Goods Sold( 8 ) 49000 56000 59500 164500 =70%*Sales Add: Desired ENDING inventory ( 9 ) 11200 11900 7700 7700 ( 10 ) =20%*next month s COGS Total Needs ( 11 ) 60200 67900 67200 172200 Less: BEGINNING Inventory ( 12 ) (9800) (11200) (11900) (9800) ( 13 ) Required purchases ( 14 ) 50400 56700 55300 162400 ( 6 ) Total Cash receipt (Cash collection) =cash sales of current month + credit sales of prior month; OR Total Cash receipt =40%*sales + 60%*sales of prior month. For instant, January: 64000 =28000+36000 OR 64000 = 40%*70000 + 60%*60000 February: 74000 = 32000+42000 OR 74000 = 40%*80000 + 60%*70000 ( 7 ) Quarter = January + February + March ( 8 ) Cost of Goods Sold =70%*Sales. For example, 49000 = 21000*70% ( 9 ) Desired ENDING inventory =20%*next month s COGS January: 11200 = 20%*56000 February: 11900 = 20%*59500 ( 10 ) Quarter s Desired Ending Inventory is equal to the desired ending Inventory of March 31. ( 11 ) Total Needs = Cost of Goods Sold + Desired Inventory ( 12 ) expected beginning inventory of finished goods ( 13 ) Quarter s beginning Inventory = the December ending inventory = the January beginning inventory ( 14 ) Required Budget = Total Needs BEGINING Inventory
Schedule 3. Expected Cash Disbursement The cash disbursement budget (schedule 3) details the expected cash payments during the 1 st quarter for Lim Corporation. The pink-shaded top portion shows the schedule of cash payments for the merchandise purchases which based on data e and the required purchases from schedule 2. The Selling, general, and Administrative expense budget shows the planned amounts of expenditures for selling, general, and administrative expenses during the 1 st quarter. Lim Corporation s selling and administrative expense budget is displayed as the shaded bottom portion part for selling and Administrative expense of schedule 3, based on the data f. Cash Disbursement Budget For the quarter Ending March 31, 20X1 For Merchandise Purchases: 20X1 December January February March 1 st Quarter ( 15 ) Required purchases (From schedule 2) 43400 ( 16 ) 50400 56700 55300 162400 Total Disbursement for Purchases ( 17 ) For Selling and Administrative Expenses: 32550 ( 18 ) 45150 51975 56350 153475 Commission Expense 12000 12000 12000 36000 Rent 1800 1800 1800 5400 Other expenses ( 19 ) 5600 6400 6800 18800 Total Disbursements for Expenses ( 20 ) 19400 20200 20600 60200 ( 15 ) Quarter = January + February + March ( 16 ) Required purchases of December = the account payable / 75% = 32550 / 75% = 43400 ( 17 ) Cash Payments for Purchases = 25% of current month s required purchases + 75% of prior month s required purchases. For example: January: 45150=25%*50400 + 75%*43400 February: 51975=25%*56700 + 75%*50400 ( 18 ) Beginning balance of the accounts payable ( 19 ) Other expenses = 8%*Sales (including $2400 Depreciation for the quarter) January: 5600=8%*70000 February: 6400=8%*80000 ( 20 ) Total Cash payment for expenses (Total expenses ) = Commissions + Rent + Other expenses
For Equipment 3000 8000 11000 Total cash disbursements ( 21 ) 67550 80175 76950 224675 Schedule 4. Summary Cash Budget Analysis of short-term financing needs: In order to maintain cash balance of $5000 at the end of each month while we also need cash to pay for the equipment in data g, the following analysis table details the amount of cash we need to borrow from local bank. January February March 1 st quarter Cash balance at beginning of month 6000 0 0 6000 Less: minimum cash balance (5000) (5000) (5000) (5000) Cash available for equipment purchases ( 22 ) 1000 0 0 1000 Less: Cost of investment in Equipment (from schedule 3) Required short term borrowing ( 23 ) (3000) 8000 0 (11000) (2000) (8000) 0 (10000) The cash budget details the expected cash receipts and disbursements during the 1 st quarter. Lim Corporation s completed cash budget is displayed as schedule 4. The pink shaded top portion pulls together the cash receipts and cash disbursements detailed in schedule 1 and 3. Also, based on the data showing the cash balance of $6000 as of December 31, 20X0. Cash Budget For the quarter Ending March 31, 20X1 20X1 January February March 1 st Quarter ( 24 ) ( 21 ) Total cash disbursement = cash disbursement for inventory + for operating expenses + for equipment ( 22 ) Cash available for equipment purchase = beginning cash balance minimum cash balance required. (1000 = 6000-5000) ( 23 ) Based on the data h which local bank allows company to borrow from $1000 up to the total balance of $50000. ( 24 ) Quarter = January + February + March
Cash balance, January 1, 20X1 6000 5000 6175 6000 Add: Cash receipts (cash collection) 64000 74000 82000 220000 (from schedule 1) Total cash available 70000 79000 88175 226000 Less: Total cash disbursements (from schedule 3) (67550) (80175) (76950) (224675) Excess (deficiency) of cash ( 25 ) 2450 (1175) 11225 1325 Others (Financing) Add: Proceeds from bank loan ( 26 ) (From analysis of financing needs) Quarter Interest on bank loan ( 27 ) (at March 31, 20X1) Less: Repayment of bank loan ( 28 ) March 31, 20X1 CASH BALANCE March 31, 20X1 10000 10000 300 10300 1025 ( 29 ) ( 25 ) Excess of cash when total cash receipts > total cash disbursements, and vice versa, it is decicency of cash when the cash receipts < total cash disbursement. ( 26 ) Based on the data h which local bank allows company to borrow from $1000 up to the total balance of $50000. Therefore, proceeds from bank loan= required short term borrowing. ( 27 ) Interest bank loan = 1%per month*borrowing loan=3months*1%*10000=300 ( 28 ) based on the data h that we repay the loan plus interest at the end of the quarter ( 29 ) 1025 = 1325 + 10000-10300
Schedule 5. Absorption Costing Income Statement Absorption Costing Income Statement For the quarter Ended March 31, 20X1 1 st Quarter ( 30 ) Sales Revenue (from sale budget) 235000 Less: Cost of Goods Sold (from schedule 2) (164500) Gross Margin ( 31 ) 70500 Less: Selling & Administrative expenses (From schedule 3) Less: Interest on bank loan (from schedule 4) NET INCOME (60200) (300) 10000 ( 32 ) Schedule 6. Balance Sheet as of March 31 ASSETS Cash (from schedule 4) Account Receivable ( 33 ) Building and Equipment ( 34 ) Inventory (from schedule 2) TOTAL: Budgeted Balance Sheet March 31, 20X1 $ 1025 $ 51000 $119485 $7700 179210 ( 30 ) Quarter = January + February + March ( 31 ) Gross margin = Sales revenue Cost of Goods sold; OR = 30%*Sales (data a) 70500 = 235000 164500, OR 70500 = 235000*30% ( 32 ) net income before tax = 10000 = 70500-60200-300 ( 33 ) Account Receivable Beginning Jan1 36000 + sale on account (sale budget) 141000 cash collection from credit sales 126000 = 51000 ( 34 ) balance 110885+cost of equipment acquired 11000-depreciation 2400=119485
LIABILITY + EQUITY Common shares Retained earnings ( 35 ) Account payable ( 36 ) Total: 100000 40135 41475 181610 ( 35 ) Beginning 30135 + net income 10000 =40135 ( 36 ) beginning 32550 + purchase 162400-cash payments for purchases 153475 (Schedule 3) = 41475
APPENDIX After using all the data information, I created this condensed table to describe in detail where the numbers come from, as well as which data I used. Based 20X0 20X1 (Budget) on data December (Actual) January February March 1 st Quarter April ( 37 ) b Sales 60000 70000 80000 85000 235000 55000 a Gross margin ( 38 ) =30%*Sales 18000 21000 24000 25500 70500 16500 a Cost of Goods Sold( 39 ) =70%*Sales 42000 49000 56000 59500 164500 38500 c Cash Sales ( 40 )= 40%*Sales 24000 28000 32000 34000 94000 22000 c Credit Sales ( 41 )= 60%*Sales 36000 42000 48000 51000 141000 33000 Total Cash Receipts ( 42 ) 64000 74000 82000 220000 73000 d Desired ENDING inventory ( 43 ) 9800 11200 11900 7700 7700 ( 44 ) =20%*next month s COGS Total Needs ( 45 ) 51800 60200 67900 67200 172200 BEGINNING Inventory ( 46 ) 9800 11200 11900 9800 ( 47 ) 7700 ( 37 ) Quarter = January + February + March ( 38 ) Gross margin =30%*Sales January: 21000 = 30%*70000 February: 24000 = 30%*80000 ( 39 ) Cost of Goods Sold =70%*Sales. For example, 49000 = 21000*70% ( 40 ) Cash Sales = 40%*Sales January: 28000 = 40%*70000 February: 32000 = 40%*80000 ( 41 ) Credit Sales = 60%*Sales January: 42000 = 60%*70000 February: 48000 = 60%*80000 ( 42 ) Total Cash receipt (Cash collection) =cash sales of current month + credit sales of prior month; OR Total Cash receipt =40%*sales + 60%*sales of prior month. For instant, January: 64000 =28000+36000 OR 64000 = 40%*70000 + 60%*60000 February: 74000 = 32000+42000 OR 74000 = 40%*80000 + 60%*70000 ( 43 ) Desired ENDING inventory =20%*next month s COGS January: 11200 = 20%*56000 February: 11900 = 20%*59500 ( 44 ) Quarter s Desired Ending Inventory is equal to the desired ending Inventory of March 31. ( 45 ) Total Needs = Cost of Goods Sold + Desired Inventory
Required purchases ( 48 ) 43400 ( 49 ) 50400 56700 55300 162400 e Total Disbursement for Purchases ( 50 ) 32550 ( 51 ) 45150 51975 56350 153475 f Commission Expense 12000 12000 12000 36000 f Rent 1800 1800 1800 5400 f Other expenses ( 52 ) 5600 6400 6800 18800 Total Disbursements for Expenses ( 53 ) 19400 20200 20600 60200 f, g Equipment expenses 3000 8000 11000 ( 46 ) expected beginning inventory of finished goods ( 47 ) Quarter s beginning Inventory = the December ending inventory = the January beginning inventory ( 48 ) Required Budget = Total Needs BEGINING Inventory ( 49 ) Required purchases of December = the account payable / 75% = 32550 / 75% = 43400 ( 50 ) Cash Payments for Purchases = 25% of current month s required purchases + 75% of prior month s required purchases. For example: January: 45150=25%*50400 + 75%*43400 February: 51975=25%*56700 + 75%*50400 ( 51 ) Beginning balance of the accounts payable ( 52 ) Other expenses = 8%*Sales (including Depreciation of $2400) January: 5600=8%*70000 February: 6400=8%*80000 ( 53 ) Total Cash payment for expenses (Total expenses ) = Commissions + Rent + Other expenses