Master Budget

Prepare a comprehensive 6-month budget, including supporting schedules and a report for the period January 1, 2004 to June 30, 2004 for XYZ

written summary report, outlining the main issues and problems identified during the budgeting process and suggestions for improving the budget forecast. including profitability, cash needs and cost structure.
? Create a Sales Forecast and Budget.
? Create a Cash Receipts budget.
? Create a Purchase budget.
? Create a Cash Disbursements budget.
? Create an Operating Expense budget.
? Create, a Summary Cash budget.

INFORMATION FOR INFORMATION FOR XYZ, INC. BUDGET PROJECT

1. XYZ, INC. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for XYZ,, so XYZ, has no manufacturing-related costs.

2. As of 11/03, each lawn chair costs XYZ, $4 per unit. Henron sells each chair for $10 per unit.

3. The forecasted sales for November and December 2003 are 11,250 units and 11,600 units, respectively.

4. For the first half of 2004 and July 2004, the estimated sales (in units) are as follows:

Jan 10,000
Feb 11,400
Mar 12,000
Apr 15,600
May 18,000
June 22,000
July 18,000

5. Thirty percent of any month's sales are for cash, and the remaining 70% are on credit. Thirty percent of the credit sales are collected in the month of sale, 50% are collected in the following month, and 16% are collected in the second month after the sale. The remaining receivables are deemed uncollectible. Bad debts are written off in the month the debt is deemed uncollectible (e.g. if the sale is made in January and is not collected by the end of March, it is written off in March.) No accrual for estimated bad debts is made in the month of sale.

6. The firm's policy regarding inventory is to stock (i.e. have in ending inventory) 40% of the forecasted demand in units (i.e., estimated sales) for the next month.

7. Forty percent of the inventory purchases are paid for in the month of purchase and the remaining 60% are paid in the following month (i.e. all of the previous month's Accounts Payable are paid off by the end of any month.)

8. Per an existing contract, the cost of each chair is scheduled to increase by 5% on March 1, 2004. In addition, because of increasing costs of plastic webbing, the cost is anticipated to increase by an additional 5% on May 1, 2004. To offset these increases, the company plans to raise the sales price to $11.25 per unit beginning May 1, 2004. The sales forecast (i.e., estimated sales in units) takes this price increase into account.

9. XYZ, uses the first-in, first-out (FIFO) method in accounting for inventories.

10. Per a prior contract, a cash payment of $50,000 for equipment previously purchased is due in January. Another payment of $30,000 is due in February. Depreciation on the equipment previously purchased is included in the overhead cost detailed in item 11 below. Also, dividends of $12,000 are to be paid in March.

11. Monthly sales and administrative expenses consist of the following (if these are cash expenses, they are paid when incurred):

Salaries and Wages $3,000
Sales Commissions 7% of sales revenue
Rent $8,000
Other Variable Cash Expenses 6% of sales revenue
Supplies Expense $2,000
Other: See note below table $48,000

Note: Other general and administrative overhead is expected to be $48,000 per month. Of this amount, $24,000 represents depreciation and other non-cash expenses.

Cash expenses for overhead items are paid when incurred.

12. The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. Ignore interest on the loan in your calculations, but minimize the amount borrowed and pay off any loans as soon as possible.

13. Cash on hand as of December 31, 2003 is expected to be $15,000. In addition, there will be no notes payable as of this date.