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ACC - You have just been hired as a management trainee by a company selling cameras

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Question;You have just been hired as a management trainee by a company selling cameras. The company has an exclusive franchise on the distribution of the cameras, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, startingApril 1. You are anxious to make a favorable impression on the president and have assembled the information below.The company desires a minimum ending cash balance each month of $10,000. The cameras are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:January (actual)............... 20,000February (actual).............. 24,000March (actual)................ 28,000April......................... 35,000May........................ 45,000June................. 60,000July.................. 40,000August............... 36,000September............ 32,000382 Chapter 8The large buildup in sales before and during June is due to Father?s Day. Ending inventories are supposed to equal 90% of the next month?s sales in units. The cameras cost the company $5 each.Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month?s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.The company?s monthly selling and administrative expenses are given below:Variable:Sales commissions...... $1 per cameraFixed:Wages and salaries...... $22,000Utilicameras............... $14,000Insurance............. $1,200Depreciation........... $1,500Miscellaneous.......... $3,000All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Fixed assets will be purchased during May for $25,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company?s balance sheet at March 31 is given below:AssetsCash...................................... $ 14,000Accounts receivable ($48,000 February sales,$168,000 March sales)...................... 216,000Inventory (31,500 units)....................... 157,500Prepaid insurance............................ 14,400Fixed assets, net of depreciation................ 172,700Total assets................................. $574,600Liabilities and Stockholders? EquityAccounts payable............................ $ 85,750Dividends payable........................... 12,000Capital stock................................ 300,000Retained earnings........................... 176,850Total liabilities and stockholders? equity........... $574,600The company can borrow money from its bank at 12% annual interest. All borrowing must be done at the beginning of the month, and repayments must be made at the end of the month. Repayments of principal must be in round $1,000 amounts. Borrowing (and payment of interest) can be in any amount. Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Round all interest payments to the nearest whole dollar. Compute interest on whole months (1/12, 2/12 and so on). The company wishes to use any excess cash to pay off loans as rapidly as possible.1. Prepare the following budgets for the three months, starting April 1a. Salesb. Cash Collectionc. Purchasesd. Budgeted cash payments for purchasese. Cash Budget2. Prepare a budgeted income statement for each month for the next three months. Include a common size income statement for the budgeted numbers.3. Management has ask that you present this information in the meeting. You were also asked to take perform some additional projections based on the following:a. Sales decrease 30% over next 3 monthsb. Sales increase 35% over next 3 monthsc. Sales commission increases from $1 to $1.50d. Cost to produce a camera increases to $7.50e. Interest rate to borrow money increase to 15%.You need to report on each projection separately and then collaborate. Your projection should include the impact on the budgets prepared in requirements 1 as well as the budgeted income statement.

 

Paper#40406 | Written in 18-Jul-2015

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