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Embry-Riddle ACCT 312 Module 6 Case Study




Question;MGMT 312;Preparation of a Complete Master Budget Problem;7-5A;Near the end of 2011, the;management of Simid Sports Co., a manufacturing company, prepared the following;estimated balance sheet for December 31, 2011.;To prepare a master budget for;January, February, and March of 2012, management gather the following;information;?;Simid Sports? single;product is purchased for $30 per unit and resold for $55 per unit. The expected;inventory level of 2,500 units on December 31, 2011, is more than management?s;desired level for 2012 which is 20% of the next month?s expected sales (in;units). Expected sales are: January, 3,500 units, February, 4,500 units;March, 5,500 units, and April, 5,000 units.;?;Cash sales and credit;sales represent 25% and 75%, respectively, of total sales. Of the credit sales;60% is collected in the first month after the month of sale and 40% in;the second month after the month of sale. For the December 31, 2011, accounts;receivable balance, $62,500 is collected in January and the remaining $200,000;is collected in February.;?;Merchandise purchases;are paid for as follows: 20% in the first month after the month of;purchase and 80% in the second month after purchase. For the December 31;2011, accounts payable balance, $40,000 is paid in January and the remaining;$140,000 is paid in February.;?;Sales commissions;equal to 20% of sales are paid each month. Sales salaries (excluding;commissions) are $30,000 per year.;?;General and administrative;salaries are $72,000 per year. Maintenance expense equals $1,000 per month;and is paid in cash.;?;Equipment reported in;the December 31, 2011, balance sheet was purchased in January 2011. It is being;depreciated over eight years using the straight-line method with no salvage;value. The following amounts for new equipment purchases are planned in the;coming quarter: January, $18,000, February, $48,000, and March;$14,400. This equipment will be depreciated using the straight-line;method over eight years with no salvage value. A full month?s depreciation;is taken for the month in which equipment is purchased.;?;The company plans to;acquire land at the end of March at a cost of $75,000, which will be paid for;with cash on the last day of the month.;?;Simid Sports has a;working arrangement with its bank to obtain additional loans as needed. The;interest rate is 12% per year, and interest is paid at each month-end based on;the beginning balance. Partial or full payments on these loans can be;made on the last day of the month. The company has agreed to maintain a;minimum ending cash balance of $12,500 each month.;?;The income tax rate;for the company is 40%. Income taxes on the first quarter?s income will not be;paid until April 15.;Prepare a master budget for each of;the first three months of 2012, include the following component budgets (show;supporting calculations as needed, and round amounts to the nearest dollar)


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