Mogel Enterprises - Master Budget

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
Please use the spreadsheet provided with the answer key (sheet 2).

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
(e) Advertising is $4,500

(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 ½ in the current month and ½ 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%.