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    Completing a master budget for Norway Company

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    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.

    © BrainMass Inc. brainmass.com October 9, 2019, 10:58 pm ad1c9bdddf
    https://brainmass.com/business/budgets/completing-a-master-budget-239219

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    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 ...

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