Preparing an operating budget—sales and production budgets

Gorman Company manufactures drin" rel="nofollow">inkin" rel="nofollow">ing glasses. One unit is a package of eight glasses, which sells for $35. Gorman projects sales for April will be 5,500 packages, with sales in" rel="nofollow">increasin" rel="nofollow">ing by 450 packages per month for May, June, and July. On April1, Gorman has 125 packages on hand but desires to main" rel="nofollow">intain" rel="nofollow">in an endin" rel="nofollow">ing in" rel="nofollow">inventory of 10% of the next month’s sales. Prepare a sales budget and a production budget for Gorman for April, May, and June. May pkg. produced 5,995. E22-27 Preparin" rel="nofollow">ing a fin" rel="nofollow">inancial budget—schedule of cash receipts, sensitivity analysis. Feb. total cash receipts $11,960. Armand Company projects the followin" rel="nofollow">ing sales for the first three months of the year: $10,600 in" rel="nofollow">in January; $12,300 in" rel="nofollow">in February; and $12,900 in" rel="nofollow">in March. The company expects 60% of the sales to be cash and the remain" rel="nofollow">inder on account. Sales on account are collected 50% in" rel="nofollow">in the month of the sale and 50% in" rel="nofollow">in the followin" rel="nofollow">ing month. The Accounts Receivable account has a zero balance on January 1. Round to the nearest dollar. Requirements. 1. Prepare a schedule of cash receipts for Armand for January, February, and March. What is the balance in" rel="nofollow">in Accounts Receivable on March 31? 2. Prepare a revised schedule of cash receipts if receipts from sales on account are 60% in" rel="nofollow">in the month of the sale, 30% in" rel="nofollow">in the month followin" rel="nofollow">ing the sale, and 10% in" rel="nofollow">in the second month followin" rel="nofollow">ing the sale. What is the balance in" rel="nofollow">in Accounts Receivable on March 31? P22-57 Preparin" rel="nofollow">ing a fin" rel="nofollow">inancial budget. Assume Daniels Consultin" rel="nofollow">ing began January with $12,000 cash. Management forecasts that cash receipts from credit customers will be $52,000 in" rel="nofollow">in January and $55,000 in" rel="nofollow">in February. Projected cash payments in" rel="nofollow">include equipment purchases ($16,000 in" rel="nofollow">in January and $40,400 in" rel="nofollow">in February) and sellin" rel="nofollow">ing and admin" rel="nofollow">inistrative expenses ($6,000 each month). Daniels’s bank requires a $23,000 min" rel="nofollow">inimum balance in" rel="nofollow">in the firm’s checkin" rel="nofollow">ing account. At the end of any month when the account balance falls below $23,000, the bank automatically extends credit to the firm in" rel="nofollow">in multiples of $5,000. Daniels borrows as little as possible and pays back loans each month in" rel="nofollow">in $1,000 in" rel="nofollow">increments, plus 12% in" rel="nofollow">interest on the entire unpaid prin" rel="nofollow">incipal. The first payment occurs one month after the loan. Requirements. 1. Prepare Daniels Consultin" rel="nofollow">ing’s cash budget for January and February 2018. 2. How much cash will Daniels borrow in" rel="nofollow">in February if cash receipts from customers that month total $30,000 in" rel="nofollow">instead of $55,000? E22A-33 Preparin" rel="nofollow">ing an operatin" rel="nofollow">ing budget—in" rel="nofollow">inventory, purchases, and cost of goods sold budget. Stewart, Inc. sells tire rims. Its sales budget for the nin" rel="nofollow">ine months ended September 30, 2016, follows: Quarter Ended. March 31 June 30 September 30 Nin" rel="nofollow">ine Month Total Cash Sales 20% $20,000 $30,000 $25,000 $75,000 Credit Sales 80& $80,000 $120,000 $100,000 $300,000 Total Sales. $100,000 $150,000 $125,000 $375,000 In the past, cost of goods sold has been 40% of total sales. The director of marketin" rel="nofollow">ing and the fin" rel="nofollow">inancial vice president agree that each quarter’s endin" rel="nofollow">ing in" rel="nofollow">inventory should not be below $10,000 plus 10% of cost of goods sold for the followin" rel="nofollow">ing quarter. The marketin" rel="nofollow">ing director expects sales of $200,000 durin" rel="nofollow">ing the fourth quarter. The January 1 in" rel="nofollow">inventory was $36,000. Prepare an in" rel="nofollow">inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nin" rel="nofollow">ine-month period. E22A-34 Preparin" rel="nofollow">ing an operatin" rel="nofollow">ing budget—sellin" rel="nofollow">ing and admin" rel="nofollow">inistrative expense budget. Consider the sales budget presented in" rel="nofollow">in Exercise E22A-33. Stewart’s sellin" rel="nofollow">ing and admin" rel="nofollow">inistrative expenses in" rel="nofollow">include the followin" rel="nofollow">ing: Rent $1,100 Salaries $2,000 per month. Commissions 4% of sales Depreciation $1,800 per month Miscellaneous expenses 3% of sales Prepare a sellin" rel="nofollow">ing and admin" rel="nofollow">inistrative expense budget for each of the three quarters of 2016 and totals for the nin" rel="nofollow">ine-month period.