You have just been contracted as
a budget consultant by LBJ Company
Sales commissions 4% of sales
Fixed expenses:
Advertising $220,000
Rent $20,000
Salaries $110,000
Utilities $10,000
Insurance $5,000
Depreciation $18,000
Inventory balance as of September 30 $112,000
Merchandise purchases for September $200,000
1.
a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
COURSE PROJECT 1 INSTRUCTIONS
You have just been contracted as
a budget consultant by LBJ Company, a distributor of bracelets to various
retail outlets across the country. The company has done very little in the way
of budgeting and at certain times of the year has experienced a shortage of
cash.
You have decided to prepare a
cash budget for the upcoming fourth quarter in order to show management the
benefits that can be gained from proper cash planning. You have
worked with accounting and other areas to gather the information assembled
below.
The company sells many styles of
bracelets, but all are sold for the same $10 price. Actual sales of
bracelets for the last three months and budgeted sales for the next six months
follow:
July (actual)
|
20,000
|
August (actual)
|
26,000
|
September (actual)
|
40,000
|
October
(budget)
|
70,000
|
November
(budget)
|
110,000
|
December
(budget)
|
60,000
|
January
(budget)
|
30,000
|
February
(budget)
|
28,000
|
March
(budget)
|
25,000
|
The concentration of sales in the
fourth quarter is due to the Christmas holiday. Sufficient inventory should be
on hand at the end of each month to supply 40% of the bracelets sold in the
following month.
Suppliers are paid $4 for
each bracelet. Fifty-percent of a month's purchases is paid for in
the month of purchase; the other 50% is paid for in the following
month. All sales are on credit with no discounts. The
company has found, however, that only 20% of a month's sales are collected in
the month of sale. An additional 70% is collected in the following month, and
the remaining 10% is collected in the second month following
sale. Bad debts have been negligible.
Monthly operating expenses for
the company are given below:
Variable expenses:Sales commissions 4% of sales
Fixed expenses:
Advertising $220,000
Rent $20,000
Salaries $110,000
Utilities $10,000
Insurance $5,000
Depreciation $18,000
Insurance is paid on an annual
basis, in January of each year.
The company plans to purchase
$22,000 in new equipment during October and $50,000 in new equipment during
November; both purchases will be for cash. The company declares dividends of $20,000
each quarter, payable in the first month of the following quarter.
Other relevant data is
given below:
Cash balance as of September
30 $74,000Inventory balance as of September 30 $112,000
Merchandise purchases for September $200,000
The company maintains a minimum
cash balance of at least $50,000 at the end of each month. All
borrowing is done at the beginning of a month; any repayments are made at the
end of a month.
The company has an agreement with
a bank that allows the company to borrow the exact amount needed at the
beginning of each month. The interest rate on these loans is 1% per month and
for simplicity we will assume that interest is not compounded. At the end of
the quarter, the company will pay the bank all of the accrued interest on the
loan and as much of the loan as possible while still retaining at least $50,000
in cash.
Required:
Prepare a cash budget for the
three-month period ending December 31. Include the following detailed budgets:1.
a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
2. A cash budget. Show the budget
by month and in total. Determine any borrowing that would be needed to maintain
the minimum cash balance of $50,000.
TUTORIAL PREVIEW
LBJ Company
|
||||||
SALES BUDGET:
|
||||||
October
|
November
|
December
|
Quarter
|
|||
Budgeted unit sales
|
70,000
|
110,000
|
60,000
|
240,000
|
||
Selling price per unit
|
10
|
10
|
10
|
10
|
||
Total Sales
|
700,000
|
1,100,000
|
600,000
|
2,400,000
|
||
File name: LBJ Company.xlsx File type: .xlsx PRICE: $20
