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Case 08-29_CRAVAT SALES COMPANY_Budgets

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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, starting;April;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)............... 20,000;February;(actual).............. 24,000;March;(actual)................ 28,000;April......................... 35,000;May........................ 45,000;June................. 60,000;July.................. 40,000;August............... 36,000;September............ 32,000;382;Chapter 8;The;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 camera;Fixed;Wages;and salaries...... $22,000;Utilicameras............... $14,000;Insurance............. $1,200;Depreciation........... $1,500;Miscellaneous.......... $3,000;All;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;Assets;Cash...................................... $;14,000;Accounts;receivable ($48,000 February sales;$168,000;March sales)...................... 216,000;Inventory;(31,500 units)....................... 157,500;Prepaid;insurance............................ 14,400;Fixed;assets, net of depreciation................ 172,700;Total;assets.................................;$574,600;Liabilities;and Stockholders? Equity;Accounts;payable............................ $ 85,750;Dividends;payable........................... 12,000;Capital;stock................................ 300,000;Retained;earnings........................... 176,850;Total;liabilities and stockholders? equity........... $574,600;The;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 1;a.;Sales;b.;Cash Collection;c.;Purchases;d.;Budgeted cash payments for purchases;e.;Cash Budget;2.;Prepare a budgeted income statement for each month for the next three months.;Include a common size income statement for the budgeted numbers.

 

Paper#40410 | Written in 18-Jul-2015

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