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Prepare a Master Budget Victoria Kite Company, a small Melbourne firm that sells kites on the web wants a master budget for the next three months,...

Prepare a Master Budget
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 1, Victoria Kite is beginning Just-In-Time (JIT) deliveries from suppliers, which means that purchases equal expected sales.
On January 1, 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 fifteenth 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 the tenth 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 10% 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 repayments at the end of he months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute the interest to the nearest dollar.
Assets as of Dec 31, 2004 Liabilities as of Dec 31, 2004
Cash $5,000 Accounts Payable (Merchandise) $35,550
Accounts Receivable 12,500 Dividends Payable 1,500
Inventory* 39,050 Rent Payable 7,800
Unexpired Insurance 1,500 = $44,850
Fixed assets, net 12,500
= $70,550
* November 30 inventory balance = $16,000
Recent and Forecasted sales:
October = $38,000 December = $25,000 February= $70,000 April= $45,000
November = 25,000 January = 62,000 March = 38,000
Questions:
1. Prepare a master budget including a budgeting income statement, balance sheet, statement of cash receipts and disbursements, and supporting schedules for the months January through March 2005.
2. Explain why there is a need for a bank loan and what operating sources provides the cash for the repayment of the bank loan
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(See attached file for full problem description)

Prepare a Master Budget
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 1, Victoria Kite is beginning Just–In-Time (JIT)
deliveries from suppliers, which means that purchases equal expected
sales.
On January 1, 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 fifteenth 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 the tenth 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 10% 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 repayments at the end
of he months in question. Money is never borrowed at the beginning and
repaid at the end of the same month. Compute the interest to the nearest
dollar.
Assets as of Dec 31, 2004
Liabilities as of Dec 31, 2004
Cash $5,000 Accounts Payable (Merchandise) $35,550
Accounts Receivable 12,500 Dividends Payable 1,500
Inventory* 39,050 Rent Payable 7,800
Unexpired Insurance 1,500 = $44,850
Fixed assets, net 12,500
= $70,550
* November 30 inventory balance = $16,000
Recent and Forecasted sales:
October = $38,000 December = $25,000 February= $75,000 April= $45,000
November = 25,000 January = 62,000 March = 38,000
Questions:
Prepare a master budget including a budgeting income statement, balance
sheet, statement of cash receipts and disbursements, and supporting
schedules for the months January through March 2005.
Explain why there is a need for a bank loan and what operating sources
provides the cash for the repayment of the bank loan

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