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You have just been hired as a management trainee by Cravat Sales Company, a nationwide dis

You have just been hired as a management trainee by Cravat Sales Company, a nationwide dis

You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designerAc€?cs silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below.

     The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:

       
  January (actual) 28,000   June 69,000
  February (actual) 28,000   July 49,000
  March (actual) 36,000   August 40,000
  April 39,000   September 35,000
  May 53,000    
 

The large buildup in sales before and during June is due to FatherAc€?cs Day. Ending inventories are supposed to equal 90% of the next monthAc€?cs sales in units. The ties cost the company $5 each.

     Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a monthAc€?cs sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.

 
The companyAc€?cs monthly selling and administrative expenses are given below:
 
  Variable:      
     Sales commissions $ 1 per tie
  Fixed:      
     Wages and salaries $ 31,900  
     Utilities $ 18,500  
     Insurance $ 1,100  
     Depreciation $ 1,500  
     Miscellaneous $ 3,400  
 

     All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $26,000 cash. The company declares dividends of $10,000 each quarter, payable in the first month of the following quarter. The companyAc€?cs balance sheet at March 31 is given below:

     
Assets
  Cash $ 19,000
  Accounts receivable ($56,000 February sales; $216,000
  March sales)
  272,000
  Inventory (35,100 units)   175,500
  Prepaid insurance   13,200
  Fixed assets, net of depreciation   105,550
     
  Total assets $ 585,250
     
Liabilities and StockholdersAc€?c Equity
  Accounts payable $ 96,750
  Dividends payable   10,000
  Capital stock   300,000
  Retained earnings   178,500
     
  Total liabilities and stockholdersAc€?c equity $ 585,250
     
 

     The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $140,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.

Required:
1. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
a. A sales budget by month and in total.
Cravat Sales Company
Sales Budget
        April       May       June       Quarter - Total
  Total sales $ $ $ $
 
b.

A schedule of expected cash collections from sales, by month and in total. (Leave no cells blank - be certain to enter "0" wherever required.)

Cravat Sales Company
Schedule of Expected Cash Collections
         April        May        June        Quarter - Total
  February sales   $   $   $   $
  March sales                
  April sales                
  May sales                
  June sales                
                 
  Total cash collections   $   $   $   $
                 
 
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Input all amounts as positive values.)
Cravat Sales Company
Merchandise Purchases Budget
        April       May       June       Quarter - Total
  Budgeted sales in units        
  (Click to select)AddDeduct: (Click to select)Budgeted ending inventoryBeginning inventory        
          
  Total needs        
  (Click to select)DeductAdd: (Click to select)Beginning inventoryBudgeted ending inventory        
         
  Required unit purchases        
  Unit cost $ $ $ $
         
  Required dollar purchases $ $ $ $
         
 
d.

A schedule of expected cash disbursements for merchandise purchases, by month and in total. (Leave no cells blank - be certain to enter "0" wherever required.)

Cravat Sales Company
Budgeted Cash Disbursements for Merchandise Purchases
         April        May        June        Quarter - Total
  March purchases   $   $   $   $
  April purchases                
  May purchases                
  June purchases                
                 
  Total cash payments   $   $   $   $
                 
 
2.

A cash budget. Show the budget by month and in total. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Total Financing should be indicated with a minus sign when the company is repaying amounts that were previously borrowed.)

Cravat Sales Company
Cash Budget
For the Three Months Ending June 30
         April        May        June         Quarter - Total
  Cash balance, beginning   $   $   $   $
  Add receipts from customers                    
  Total cash available                
                 
  Less disbursements:                
       Purchase of inventory                
       Sales commissions                
       Salaries and wages                
       Utilities                
       Miscellaneous                
       Dividends paid                
       Land purchases                
                 
  Total disbursements                
                 
  Excess (deficiency) of receipts over
    disbursements
               
                 
  Financing:                
       Borrowings                
       Repayments                
       Interest                
                 
Total financing                
                 
  Cash balance, ending   $   $   $   $
                 
 
3.

A budgeted income statement for the three-month period ending June 30. Use the contribution approach. (Input all amounts as positive values, except losses which should be indicated with a minus sign.)

Cravat Sales Company
Budgeted Income Statement
For the Three Months Ended June 30
  (Click to select)Cost of goods soldNet operating income (loss)Insurance expensesNet income (loss)UtilitiesSales revenueContribution margin       $
  Variable expenses:        
       (Click to select)UtilitiesAdvertisingCost of goods soldNet operating incomeSalariesCommissionsRent   $    
       (Click to select)CommissionsAdvertisingRentSalariesUtilitiesCost of goods soldNet operating income        
         
  (Click to select)Interest expenseContribution marginUtilitiesCost of goods soldNet operating income (loss)CommissionsSales revenue        
  Fixed expenses:        
       (Click to select)Wages and salariesSalesInsurance expensesNet operating income (loss)DepreciationUtilitiesMiscellaneous        
       (Click to select)SalesUtilitiesDepreciationNet operating income (loss)Insurance expensesWages and salariesMiscellaneous        
       (Click to select)UtilitiesSalesDepreciationInsurance expensesNet operating income (loss)Wages and salariesMiscellaneous        
       (Click to select)Net operating income (loss)UtilitiesInsurance expensesDepreciationMiscellaneousWages and salariesSales        
       (Click to select)SalesDepreciationInsurance expensesUtilitiesMiscellaneousWages and salariesNet operating income (loss)        
         
  (Click to select)Net income (loss)Wages and salariesContribution marginUtilitiesSales revenueCost of goods soldNet operating income (loss)        
  (Click to select)Prepaid insuranceSales commissionsInterest expenseNet operating income (loss)InsuranceRentUtilities        
         
  (Click to select)UtilitiesSales revenueCommissionsNet income (loss)Cost of goods soldWages and salariesContribution margin       $
         
 
4. A budgeted balance sheet as of June 30. (Be sure to list the assets and liabilities in order of their liquidity.)
Cravat Sales Company
Budgeted Balance Sheet
June 30
Assets
  (Click to select)Prepaid insuranceInventoryAccounts receivableFixed assets, net of depreciationCash $
  (Click to select)Fixed assets, net of depreciationPrepaid insuranceAccounts receivableInventoryCash  
  (Click to select)InventoryAccounts receivableCashFixed assets, net of depreciationPrepaid insurance  
  (Click to select)Accounts receivablePrepaid insuranceInventoryFixed assets, net of depreciationCash  
  (Click to select)Accounts payableCapital stockDividends payableFixed assets, net of depreciationRetained earnings  
   
  Total assets $
   
Liabilities and StockholdersAc€?c Equity
  (Click to select)Dividends payableCapital stockAccounts payableCashRetained earnings $
  (Click to select)Dividends payableCapital stockAccounts payableRetained earningsLoans payable, bank  
  (Click to select)Retained earningsCapital stockAccounts payableLoans payable, bankDividends payable  
  (Click to select)Accounts payableCapital stockDividends payableCashLoans payable, bank  
  (Click to select)Loans payable, bankCashAccounts payableRetained earningsDividends payable  
   
  Total liabilities and stockholdersAc€?c equity
Roshan kumar 24-Nov-2017

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