DEMO 7-1 FROM SCRATCH ORIGINAL FACT PATTERN and Workpapers - CHANG DISTRIBUTORS

DEMO 7-1 FROM SCRATCH ORIGINAL FACT PATTERN and Workpapers - CHANG DISTRIBUTORS

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Acct 222 Zeigler - Demonstration Problem for Chapter 7 Comprehensive Budgeting Chang Distributors, a wholesale company, is considering whether to open a new distribution center near Bowling Green, Ohio. The center would open January 1, 2009. Extensive advance planning is required and the Board of Directors requires a Master (Operating) Budget for the center’s first quarter of operation (January, February, and March of 2009). Required: Construct the first quarter master budget based on the following expectations: SALES BUDGET (It all starts with a sales forecast): a. January sales are estimated to be $400,000 of which $100,000 will be cash and $300,000 will be on credit. Management expects the above sales pattern to continue with an overall grow rate of 10% per month. Prepare a sales budget. b. The company expects to collect 100% of accounts receivable in the month following the sale. Prepare a schedule of expected cash receipts. c. Use the information developed above in requirements a and b to determine the amount of accounts receivable on the March 31 pro forma balance sheet and the amount of sales on the first quarter pro forma income statement. ______________ PURCHASES BUDGET: d. Cost of goods sold will be 60% of sales. Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold. Assume Chang expects April cost of goods sold to be $314,000. Prepare an inventory purchases budget. e. All inventory purchases are on account. The company pays 70% of accounts payable in the month of purchase. It pays the remaining 30% in the following month. Prepare a schedule of expected cash payments for inventory purchases. f. Use the information developed above in requirements d and e to determine the amount of cost of goods sold on the first quarter pro forma income statement and the amounts of ending inventory and accounts payable on the March 31 pro forma balance sheet.
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g. Budgeted monthly selling and administrative expenses are: Salary Expense (Fixed) $24,000 Sales Commissions 5% of Sales Supplies Expense 2% of Sales Utilities (Fixed) $ 1,400 Depreciation on New Equipment (Fixed)* ???? Rent (Fixed) $ 3,600 Miscellaneous (Fixed) $ 900 *The capital expenditures budget shows that Chang must purchase $100,000 of equipment on January 1 to establish the new center. The equipment supplier allows a thirty-day trial period. Chang will pay for the equipment on January 31. The equipment is expected to have a 10-year useful life and a $10,000 salvage value. Prepare a selling and administrative expense budget. h. Sales commissions and utilities are paid in the month after the month in which they are incurred. All other expenses are paid in the month in which they are incurred. Prepare a schedule of cash payments for selling and administrative expenses.
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This note was uploaded on 11/02/2008 for the course ACTG 202 taught by Professor One during the Spring '08 term at N.E. Illinois.

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DEMO 7-1 FROM SCRATCH ORIGINAL FACT PATTERN and Workpapers - CHANG DISTRIBUTORS

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