Explore BrainMass

Explore BrainMass

    Master Budget for Victoria Kite Company

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    (See attached file for full problem description)

    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, 2005. It desires an ending minimum cash balance of $5,000 each month. Sales are forecasted at an average wholesale selling price of $8 per kite. In January, Victoria Kite is beginning just in time (JIT) delivers from suppliers, which means that purchases equal expected sales.

    On January1, 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 quarterly sales over $10,000

    Cash dividends of $1,500 are to be paid quarterly, beginning January 15, and are declared on the 15th 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 the10th of the month following the end of the quarter. The next settlement is due 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 19% 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 the repayments at the end of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.

    Assests as of of December 31, 2004
    Cash $5,000
    Accounts receivable $12,500
    Inventory * $39,050
    Unexpired insurance $1,500
    Fixed assets, net $12,500
    * November 30 inventory balance = $16,000

    Liabilities as of December 31,2004
    Accounts payable $35,550
    Dividends payable $1,500
    Rent payable $7,800

    Recent and forecasted sales:
    October $38,000
    November $25,000
    December $25,000
    January $62,000
    February $75,000
    March $38,000
    April $45,000

    1) Prepare sales budget, cash collections, purchases budget, cash disbursement for purchases, operating expenses and disbursements for expenses for the months January thru March 2005.
    2) Prepare cash budget and balance sheet for the months January thru March 2005.

    Note: for tutors from Brainmass.com

    Answers were given:

    Total assets should be $77,567 (January thru March 2005)
    Stockholder's equity on the balance sheet:
    Balance December 31, 2004 $25,700
    Add: Net income $16,367
    Less: Dividend declared $1,500
    Balance March 31, 2005 $40,567

    (See attached file for full problem description)

    © BrainMass Inc. brainmass.com December 24, 2021, 5:25 pm ad1c9bdddf


    Solution Preview

    See the Attached excel file. The cash budget and the balance sheet ...

    Solution Summary

    The solution explains how to prepare a master budget for Victoria Kite Company