{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

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

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
ADMINISTRATIVE & SALES EXPENSE BUDGET: 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.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern