Completing a master budget

Norway Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

a. As of March 31(the end of the prior quarter), the company's balance sheet showed the following account balances:
Cash $ 9,000
Accounts receivable 48,000
Inventory 12,600
Buildings and equipment (net) 214,100
Accounts payable $ 18,300
Capital stock 190,000
Retained earnings 75,400
$283,700 $283,700
b. Actual sales for March and budgeted sales for April-July are as follows:
March (actual) $60,000
April $70,000
May $85,000
June $90,000
July $50,000
c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales.
d. The company's gross margin percentage is 40%of sales. (In other words, cost of goods sold is 60% of sales.)
e. Monthly expenses are budgeted as follows: salaries and wages, $7,500 per month; shipping, 6% of sales; advertising, $6,000 per month; other expenses, 4% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be 6,000 for the quarter.
f. Each month's ending inventory should equal 30% of the following month's cost of goods sold.
g. Half of a month's inventory purchases are paid for in the month of purchase and half in the following month.
h. Equipment purchases during the quarter will be as follows: April, $11,500; and May, $3,000.
i. Dividends totaling $3,500 will be declared and paid in June.
j. Management wants to maintain a minimum cash balance of $8,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Using the data above, complete the following statements and schedules for the second quarter:

1. Schedule of expected cash collections:
April May June Total
Cash Sales $14,000
Credit Sales 48,000
Total collections $62,000

2. a. Merchandise purchases budget:

April May June Total
Budgeted cost of goods sold $42,000* $51,000
Add desired ending inventory 15,300*
Total needs 57,300
Less beginning inventory 12,600
Required purchases $44,700

*$70,000 sales*60%=$42,000.
$51,000*30%=$15,300.

B.Schedule of expected cash disbursements for merchandise purchases:

April May June Total
For March purchases $18,300 $18,300
For April purchases 22,350 22,350 44,700
For May purchases
For June purchases

Total cash disbursements for
Purchases $40,650
3. Schedule of expected cash disbursements for selling and administrative expenses:
April May June Total
Salaries and wages $7,500
Shipping 4,200
Advertising 6,000
Other expenses 2,800

Total cash disbursements for
Operating $20,500

4. Cash budget
April May June Total
Cash balance, beginning $9,000
Add cash collections 62,000
Total cash available 71,000

Less cash disbursements:
For inventory purchases 40,650
For selling and administrative 20,500
Expenses
For equipment purchase 11,500
For dividends --------

Total cash disbursements 72,650
Excess (deficiency) of cash (1,650)
Financing
Etc.

5. Prepare an absorption costing income statement for the quarter ending
June 30.
6. Prepare a balance sheet as of June 30.

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