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Master budget

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Prepare a master budget for the following:

Victoria kite Company, a small Melbourne firm that sells kites on the web wants a master budget for the next three months, beginning January 1, 2008. It desires an ending minimum cash budget of $ 5,000 each month. Sales are forecast 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.

On January 1, purchases will cease until inventory reaches $ 6,000, after which time purchases will equal sales. Merchandise costs average $ 4 per kite. Purchases during any given month are paid in full during the following month. 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.

Monthly operating expenses are as follows:
Wages and salaries $ 15,000
Insurance expired $ 125
Depreciation $ 250
Miscellaneous $ 2,500
Rent $ 250/month+10%of qty sales over 10K

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 10th of the month following the end quarter. The next rent settlement date is January 10. The company plans to buy fixtures for $3,000 cash in March. Money can be borrowed and repaid in multiples of $500 at at an interest rate % per annum. Management wants to minimize borrowing and repay rapidly. . Interest is computed and paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Money is never borrowed at the beginning and repayments at the end of the months in question.. Compute interest to the nearest dollar.

Assets as of December 31, 2004
Cash $ 5,000
Acct Receivable $ 12,500
Inventory $ 39,050
Unexpired Ins $ 1,500
Fixed ass, net $ 12,500
Total $ 70,550
Liabilities as of December 31, 2004
Accounts payable
(Merchandise) $ 35,500
Dividends payable $ 1,500
Rent payable $ 7,800
Total $ 44,850
(November 30 inventory balance = $16,000)
Recent and forecasted sales
October $ 38,000
November $ 25,000
December $ 25,000
January $ 62,000
February $ 70,000
March $ 38,000
April $ 45,000

Problems to solve are as follows:
Prepare a master budget including a budgeted income statement, balance sheet, cash budget and supporting schedule for the months January through March.

Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment of the bank loan.

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There is a need for bank loan since the ...

Solution Summary

Excel spreadsheet attached shows how to prepare a master budget for a company, given monthly expenses and other data.