In-Class Demo 7

# In-Class Demo 7 - Demo Chapter 7 Budgeting Chang...

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Demo Chapter 7 Budgeting

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Chang Distributors, a wholesale company, is considering whether to open a new distribution center. The center would open January 1, 2012. To make the decision, the planning committee requires a master budget for the center’s first quarter of operation (January, February, and March of 2012). Required: You are to construct the first quarter master budget based on the following expectations: a. January sales are estimated to be \$400,000 of which \$100,000 will be cash and \$300,000 will be credit. The company expects sales to grow 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 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. a. b. c. Sales Budget, Schedule of Cash Receipts, Pro Forma Data Estimated Sales Growth Rate 10% per month a. Sales Budget Pro Forma PROJECTED SALES Jan Feb Mar Stmt. Data Cash Sales (25%) 100,000 110,000 121,000 Sales on Account (75%) 300,000 330,000 363,000 Total Budgeted Sales 400,000 440,000 484,000 IS - 1,324,000 ( b) SCHEDULE OF CASH RECEIPTS Current Month’s Cash Sales 100,000 110,000 + 100% of Previous Month's A/R 0 300,000 Total Budgeted Cash Collections 100,000 410,000 451,000 ( a) Accounts receivable balance on March 31 pro forma balance sheet = March Sales on Account to be Collected in April = \$363,000 (b) Sales revenue on first quarter pro forma income statement = sum of monthly total sales = 400,000 + 440,000 + 484,000 = 1,324,000. To be collected April AR
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 in requirements d and e to determine the amount of cost of goods sold on the d. e. f. Inventory Purchases Budget, Schedule of Cash Payments for Inventory, Pro Forma Data Cost of Goods Sold Percentage 60% of Sales Desired Ending Inventory Inventory Purchases Budget Jan Feb Mar Pro Forma Stmt. Data PROJECTED PURCHASES Budgeted Cost of Goods Sold 240,000 264,000 290,400 IS - 794,400 (a ) Plus Desired Ending Inventory 66,000 72,600 78,500 BS - 78,500 (b) Total Inventory Needed 306,000 336,600 368,900 Less Beginning Inventory 0 (66,000) (72,600) Required Inventory Purchases 306,000 270,600 296,300 BS - 88,890 (c ) SCHEDULE OF CASH PAYMENTS FOR INVENTORY PURCHASES 70% of Current Purchases 214,200 189,420 207,410 30% of Prior Month's Purchases 0 91,800 81,180 Total Budgeted Inv. Payments 214,200 281,220 288,590 To Cash Budget (a) Cost of goods sold on first quarter pro forma income statement =sum of monthly COGS = 794,400 (b) Inventory balance on March 31 pro forma balance sheet = 78,500 (c) Accounts payable balance on March 31 pro forma balance sheet = \$296,300 x 30% = 88,890 \$484,000 x 60% \$314,000 x 25% 60% Sales \$400,000 x 60% 25% Next Month COGS \$264,000 x 25% To be paid April AP

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g. Budgeted monthly selling and administrative expenses
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In-Class Demo 7 - Demo Chapter 7 Budgeting Chang...

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