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# 411 PROBLEM 9-19 Completing a Master Budget [L02, L04, L07, LOS, L09, L010] Nordic Company, a merchandising company, prepares its master budget on a...

solve budget problem

PROBLEM 9-19 Completing a Master Budget [L02, L04, L07, LOS, L09, L010] Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The fol- lowing data have been assembled to assist in preparation of the master budget for the second quarter. a.As of March 31 (the end of the prior quarter), the company's balance sheet showed the following account balances: Cash \$9,000 Account Receivable 48,000 Inventory 12,600 Building and Equipment (net)214,100 Accounts Payable \$18,300 Capital Stock 190,000 Retained Earlings 75,400 \$283.700 \$283,700 411 b. Actual sales for March and budgeted sales for April-July are as follows: March(actual) \$60,000 April 70,000 May 85,000 June 90,000 July 50,000 b.Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales. c.The company's gross profit rate is 40% of sales. (In other words, cost of goods sold is 60% of sales.) e. Monthly expenses are budgeted as follows: salaries and wages, \$7,500 per month; shipping, 6% of sales; advertising, \$6,000 per month; other expenses, 4% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be \$6,000 for the quarter. f. At the end of each month, inventory is to be on hand equal to 30% of the following month's cost of goods sold. g. Half of a month's inventory purchases are paid for in the month of purchase and half in the fol- lowing month. h. Equipment purchases during the quarter will be as follows: April, \$ I I ,500; and May, \$3,000. i. Dividends totaling \$3,500 will be declared and paid in June. j. The company must maintain a minimum cash balance of \$8,000. An open line of credit is available at a local bank. Al1 borrowing is done at the beginning of a month, and an repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of \$1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., Y12,2/ 12 .) Required: Using the data above, complete the following statements and schedules for the second quarter: I. Schedule of expected cash collections: April May June Cash sales . ................. \$14,000 Credit sales . ................. 48,000 Total collections . ............. \$62,000 2. a. Inventory purchases budget: April May June Total BUdgeted cost of goods sold . ... \$42,000* \$51,000 Add desired ending inventory . ... 15,300 t Total needs . ................. 57,300 Less beginning inventory . ...... 12,600 Required purchases . .......... \$44,700 *\$70,000 sales x 60% = \$42,000. t\$51 ,000 x 30% = \$15,300. b. Schedule of cash disbursements for purchases:
b.contd. For March purchases 18,300 18,300 For April purchases 22,350 22,350 44,700 For May purchases For June purchases Total cash disbursements for pur cha ses \$4 0,6 50 413 3. Schedule of cash disbursements for operating expenses: April May Salaries and wages . .......... \$7,500 Shipping . ................... 4,200 Advertising . ................. 6,000 Other expenses . ............. 2,800 Total cash disbursements for operating expenses . ......... \$20,500 4. Cash budget: April May Cash balance, beginning . ...... \$ 9,000 Add cash collections . .......... 62,000 Total cash available . .......... 71,000 Less disbursements: For inventory purchases . ..... 40,650 For operating expenses . ..... 20,500 For equipment purchases . .... 11,500 For dividends . ............. - Total disbursements . ........ '.' 72,650 Excess (deficiency) of cash . .... (1,650) Financing Etc. June Total June Total 5.Prepare an income statement for the quarter ending June 30 as shown in Schedule 9 in the chapter. 6.Prepare a balance sheet as of June 30.

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