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Comprehensive master budget in a retail setting - Joseph A. Knab




Question;Comprehensive master budget in a retail setting (LO 3, 4, 5) Joseph A. Knab distributes men's suits inthe Southwest. The following information was gathered to prepare the budget for the third quarter of2011.? Suits are budgeted to sell for an average price of $225. Unit sales are expected to be as follows:June 4,000 suitsJuly 4,500 suitsAugust 4,700 suitsSeptember 4,600 suitsOctober 4,600 suits? Sales are made for cash and on credit. The following collection pattern is used to estimate monthlycash collections:Cash sales 41%Credit sales?month of sale 35Credit sales?month after sale 20Uncollectible 4Total 100%? The company tries to maintain an inventory of 25 percent of the following month's sales. Thecompany expects to have 1,125 suits on hand on June 30, 2011. Knab pays an average of $146 persuit.? The company pays for 70 percent of its purchases in the month of purchase and the remaining 30percent in the month after purchase.? The following monthly selling and administrative expenses are planned for the quarter, thoughadvertising will have a one?time $30,000 increase in August.Fixed Overhead Variable Cost/UnitDepreciation $ 9,000Rent 40,000Advertising 84,000Salaries 150,000Bad debts $9.00? On September 30, the company plans to purchase $45,000 of new office equipment. However, noadditional depreciation will be recorded in the third quarter.? Knab wants to maintain a minimum cash balance of $20,000. An open line of credit at a localbank allows the company to borrow up to $100,000 per quarter in $1,000 increments.? All borrowing is done at the beginning of the month, and all repayments are made at the end of amonth in $1,000 increments. Accrued interest is paid only when principal is repaid. The interestrate is 12 percent per year.? Accrued expenses from the second quarter will be paid in July.? Knab's tax rate is 30 percent.? The June 30, 2011 balance sheet is budgeted as follows:June 30Cash $ 21,000?Accounts receivable 180,000?Inventory 164,250?Plant & equipment 540,000?Accumulated depreciation (135,000)Total assets $770,250?Accounts payable $175,000?Accrued expenses 75,000?Common stock 300,000?Retained earnings 220,250?Total liabilities and equities $770,250?Requireda. Prepare all components of Knab's master budget for the third quarter of 2011.b. Prepare a pro?forma income statement for the third quarter of 2011.c. Prepare a pro?forma balance sheet as of September 30, 2011.


Paper#44615 | Written in 18-Jul-2015

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