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    Master budget including a budgeted income statement

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    1. Prepare a master budget including a budgeted income statement, balance sheet, cash budget, and supporting schedules for the months January through March 2008.
    2. Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment of the bank loan.

    7B1: Prepare Master Budget

    Victoria Kite company, a small Melbourne firm that sells kites on the web, wants a master budget for the three months beginning January 01, 2008. It desires an ending minimum of $5,000 each month. Sales are forecasted at an average wholesale selling price of $8 per kite. Merchandise costs average $4.00 per kite. All sales are on credit, payable within 30 days, but experience has shown 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.

    In January, Victoria Kite is beginning just in time (JIT) deliveries from suppliers, which means that purchases will equal expected sales. On January 01, purchases will cease until inventory decreases to $6,000, after which time purchases will equal sales. Purchases during any given month are paid in full during the following month.
    Monthly operating expenses as 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

    Cash dividends of $1,500 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. 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 rent settlement date is January 10.

    The company plans to buy some new fixtures for $3,000 cash in March. 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 compounded monthly but paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Compute interest to the nearest dollar.
    Assets as of Liabilities as of
    December 31, 2007 December 31, 2007
    Cash $5,000 Accounts payable
    Accounts receivable $12,500 (merchandise) $35,550
    Inventory* $39,050 Dividends payable $1,500
    Unexpired insurance$1,500 Rent payable $7,800
    Fixed assests,net $12,500 _______
    __________
    $70,550 $44,850

    *November 30 inventory balance = $16,000.

    Recent and forecasted sales:
    October $38,000 December $25,000 February $70,000 April $45,000
    November 25,000 January 62,000 March 38,000

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    https://brainmass.com/business/capital-budgeting/master-budget-including-a-budgeted-income-statement-301606

    Solution Preview

    7B1: Prepare Master Budget

    Victoria Kite company, a small Melbourne firm that sells kites on the web, wants a master budget for the three months beginning January 01, 2008. It desires an ending minimum of $5,000 each month. Sales are forecasted at an average wholesale selling price of $8 per kite. Merchandise costs average $4.00 per kite. All sales are on credit, payable within 30 days, but experience has shown 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.

    In January, Victoria Kite is beginning just in time (JIT) deliveries from suppliers, which means that purchases will equal expected sales. On January 01, purchases will cease until ...

    Solution Summary

    Response provides steps to compute the master budget including a budgeted income statement

    $2.19

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