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# Computing a Master Budget

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Mogel Enterprises, a chocolate distribution company, prepares its master budget on a monthly and quarterly basis.

For the months of January, February and March , you are to compute the:

(a) Schedule of expected cash collections
(b) Inventory purchase budget and Cash Disbursements
(c) Cash budget

Facts:

(1) Actual Sales in December were \$60,000
(2) Sales for January, February, March and April are:

Sales:
January
\$ 70,000

February
\$ 85,000

March
\$ 90,000

April
\$ 50,000

(3) Sales are collected at a rate of 30% for cash, and 70% on credit. All payments on credit sales are collected in the month following the sale. \$42,000 is the balance in accounts receivable at December 31, 2005. The beginning cash balance is \$10,000 with no loans outstanding.

4) Beginning inventory at January 1, 2006 is \$12,600.

(5) The companies gross profit rate is 40%

(6) Monthly expenses are budgeted as follows:

(a) Shipping is 5% of sales
(b) Depreciation \$2,000 per month
(c) Other expenses 6% of sales
(d) Salaries and Wages are fixed at \$9,000 per month

(7) In January, the company expects to purchase equipment of \$11,000 and in February they expect to purchase equipment of \$3,000 and \$4,000 in March.

(8) At the end of each month, inventory on hand should equal 30% of the following month's sales needs, stated at cost.

(9) December cash purchases for inventory were \$36,600 . We pay for inventory Â½ in the current month and Â½ in the month following. (therefore we will pay \$18,300 in January for December purchases.)

(10) The company is required by its loan covenants to maintain a cash balance of \$10,000. Further, it has an open line of credit with the bank. To reduce banking transaction cost, borrowing must be done at the beginning of a month and all repayments must be made at the end of a month. Finally, loans and repayments of principal must be in multiples of \$1,000. Interest is paid only at the time of repayment of principal. The annual interest rate is 6%.