How To Prepare a Master Budget for Victoria Kite
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Victoria Kite Company sells kits on the web wants a master budget for the next three months beginning January 1, 2005.
1) It desires an ending minimum cash balance of $5,000 each month.
2) Sales forecasted at an average wholesale selling price of $8 per kite.
In January, Victoria Kite is beginning just-in-time (JIT) deliveries from suppliers, which means that purchases equal expected sales
3) On January 1, purchases will cease until inventory reaches $6,000, after which time purchases will equal sales. Merchandise costs average $4 per kite.
4) Purchases during any given month are paid in full during the following month.
5) All sales are on credit, payable within 30 days, but experience has show that:
60% of current sales are collected in the current month,
30% in the next month, and
10% in the month thereafter. Bad debts are negligible.
6) Monthly operating expenses are as follows:
Wages and salaries $15,000
Insurance expired 125
Depreciation 250
Miscellaneous 2,500
Rent 250/month + 10% of quarterly sales over 10,000
7) Cash dividends of $1,500 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month.
8) All operating expenses are paid as incurred, except insurance, depreciation, and rent.
9) Rent of $250 is paid at the beginning of each month, and the additional 10% of sales is paid quarterly on the tenth of the month following the end of the quarter.
The next settlement is due January 10.
10) The company plans to buy some new fixtures for $3,000 cash in March.
11) Money can be borrowed and repaid in multiples of $500 at an interest rate of 10% per annum.
Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid.
11A) Assume that borrowing occurs at the beginning, and repayments at the end of the month s in questions.
11B) Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.
12) Assets as of December 31,2004
Cash $5,000
Accounts receivable 12,500
Inventory * 39,050
Un-expired insurance 1,500
Fixed assets, net 12,500
Total $70,550
13) Liabilities as of December 31, 2004
Accounts payable (merchandise) $35,550
Dividends payable 1,500
Rent payable 7,800
Total $44,850
14) November 30 inventory balance = $16,000
15) Recent and forecasted sales
October $38,000
November $25,000
December $25,000
January $62,000
February $75,000
March $38,000
April $45,000
Required:
(1) Prepare a master budget including a
Budgeted income statement for the months January through March 2005
Budgeted balance sheet for the months January through March 2005
Budgeted statement of cash receipts and disbursements for the months January through March 2005
Supporting schedules for the months January through March 2005
(2) Explain why there is a need for a bank loan and what operating sources provide the cash for repayment of the bank loan.
Instructions for requirement #1
(1) Prepare a master budget including a
Budgeted income statement for the months January through March 2005
Budgeted balance sheet for the months January through March 2005
Budgeted statement of cash receipts and disbursements for the months January through March 2005
Supporting schedules for the months January through March 2005
First do the schedules
Schedule a: Sales Budget
January February March
Total sales (100% on credit)
Schedule b: Cash Collections
January February March
60% of current month's sales
30% of previous month's sales
10% of second previous month's sales
Total collections
Schedule c: Purchases Budget
December January February March
Desired ending inventory
Cost of goods sold
Total needed
Beginning inventory
Purchases
Schedule d: Disbursements
January February March for Purchases
100% of previous month's purchases $ $ - $
Exhibit I
VICTORIA KITE
Budgeted Statement of Cash Receipts and Disbursements
For the Three Months Ending March 31, 2005
January February March
Cash balance, beginning
Minimum cash balance desired
(a) Available cash balance
Cash receipts and disbursements:
Collections from customers
Payments for merchandise
Rent
Wages and salaries
Miscellaneous expenses
Dividends
Purchase of fixtures
(b) Net cash receipts & disbursements
Excess (deficiency) of cash before
financing (a + b).
Financing:
Borrowing, at beginning of period
Repayment, at end of period
Interest, 10% per annum
(c) Total cash increase (decrease)
from financing
(d) Cash balance, end (beginning
balance + c + b)
Exhibit II
VICTORIA KITE
Budgeted Income Statement
For the Three Months Ending March 31, 2005
Sales
Cost of goods sold
Gross margin
Operating expenses:
Rent
Wages and salaries
Depreciation.
Insurance
Miscellaneous
Net income from operations
Interest expense
Net income
Exhibit III
VICTORIA KITE
Budgeted Balance Sheet
March 31, 2005
Assets
Current assets:
Cash (Exhibit I)
Accounts receivable*
Merchandise inventory
Un-expired insurance
Fixed assets, net
Total assets
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable (Schedule d)
Rent payable.
Dividends payable
Stockholders' equity (1)
Total liabilities and stockholders' equity.
(1) Balance, December 31, 2004
Add: Net income.
Total
Less: Dividends declared.
Balance, March 31, 2005
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Solution Summary
This solution shows the salculations for you. I have also provided necessary explanatory notes and calculations where needed. This solution is provided in an attached Word and Excel document.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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