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Company)
II.
FACTS OF THE CASE:
a.
Hillyard Company, an office supplies specialty store, prepares its
master budget on a quarterly basis. The following data have been
assembled to assist in preparing the master budget for the first
quarter:
As of December 31 (the end of the prior quarter), the companys
general ledger showed the following account Balances:
Debits
Cash
Account Receivable
Inventory
Building and Equipment
48,000
224,00
0
60,000
370,00
0
Account Payable
Capital Stock
Retained Earnings
Totals $
b.
Credit
s
702,0
00
93,000
500,00
0
109,00
0
702,0
00
Actual sales for December and budgeted sales for the next four
months are as follows:
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
c.
$280,000
400,000
600,000
300,000
200,000
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 December 31 are a result of December credit sales.
d.
The companys gross margin is 40% of sales. (In other words, cost
e.
f.
g.
h.
i.
j.
dividends.
Management wants to maintain a minimum cash balance of
$30,000. The company has an agreement with a local bank that
allows the company to borrow at the beginning of each month. The
interest rate on these loans is 12% per month and for simplicity we
will assume that interest is not compounded. The company would,
as far as it is able, repay the loan plus accumulated interest at the
end of the quarter.
III.
ANALYSIS/SOLUTIONS:
Using the data above, complete the following statements and
schedules for the first quarter:
February
400,000.00
400,000.0
0
600,000.00
600,000.0
0
March
300,000.00
300,000.0
0
Quarter
1,300,000.00
1,300,000.0
0
o
f
600,000.00
o
80% f
600,000.00
March 2011 Sales
February
March
Quarter
224,000.0
0
224,000.00
80,000.00
80,000.00
320,000.0
0
320,000.00
120,000.0
0
120,000.00
480,000.0
0
480,000.00
20%
o
f
300,000.00
304,000.
00
440,000.
00
60,000.00
60,000.00
540,000.
00
1,284,000.
00
February
March
Quarter
400,000.00
600,000.0
0
300,000.0
0
1,300,000.0
0
160,000.00
240,000.0
0
120,000.0
0
520,000.00
240,000.00
360,000.
00
180,000.
00
780,000.00
Sales in Dollars
Gross Margin
Budgeted Cost of
Goods Sold $
January
360,000.00
0.25
90,000.0
0
February
180,000.0
0
0.25
45,000.0
0
March
120,000.0
0
0.25
30,000.0
0
January
240,000.0
0
90,000.00
Total Needs
330,000.0
0
60,000.00
Februar
y
360,000.
00
45,000.0
0
405,000.
00
90,000.0
0
March
180,000.
00
30,000.0
0
210,000.
00
45,000.0
0
Quarter
780,000.0
0
30,000.00
810,000.0
0
60,000.00
270,000.
00
315,000
.00
165,000
.00
750,000.
00
December Purchase
93,000.0
0
135,000.
00
Februar
y
Quarter
93,000.00
135,000.
00
157,500.
00
March
228,000.
00
292,500.
00
270,000.0
0
157,500.
00
315,000.0
0
82,500.0
0
82,500.00
240,000.
00
760,500.0
0
Sales
Percentage of Sales for other
expenses
Other Expenses
$
January
400,00
0.00
0.03
February
600,000
.00
0.03
March
300,000
.00
0.03
12,000
.00
18,000
.00
9,000
.00
February
March
Sales
Percentage of Sales for shipping
expenses
Shipping Expenses
$
400,00
0.00
0.05
20,000.00
600,000
.00
0.05
300,000
.00
0.05
30,000.0
0
15,000.0
0
February
March
Quarter
27,000.00
27,000.00
27,000.00
81,000.00
70,000.00
70,000.00
70,000.00
210,000.00
20,000.00
30,000.00
15,000.00
65,000.00
12,000.00
18,000.00
9,000.00
39,000.00
129,000.
00
145,000.
00
121,000.
00
395,000.0
0
Hillyard Company
Cash Budget
For the Quarter ended March 30,2011
Beginning Cash
Balance
Add: Cash
Collection
January
February
March
Quarter
48,000.00
30,000.00
30,800.00
48,000.00
304,000.0
0
440,000.0
0
540,000.0
0
1,284,000.0
0
352,000.0
0
470,000.0
0
570,800.0
0
1,332,000.0
0
228,000.0
0
292,500.0
0
240,000.0
0
760,500.00
129,000.0
0
145,000.0
0
121,000.0
0
395,000.00
1,700.00
84,500.00
86,200.00
45,000.00
45,000.00
402,000.0
0
439,200.0
0
445,500.0
0
1,286,700.0
0
(50,000.00
)
30,800.00
125,300.0
0
45,300.00
Less: Cash
Disbursement
Inventory
Purchase
Operating
Expense
Equipment
Purchase
Cash Dividend
Total Cash
Disbursement
Excess/Deficiency
Financi
ng:
Borrowing
80,000.00
80,000.00
Repayments
-
(80,000.00
)
(80,000.00)
(2,400.00)
(2,400.00)
Interest
Total Financing
Ending Cash
Balance
80,000.00
(82,400.00
)
(2,400.00)
30,000.0
0
30,800.0
0
42,900.0
0
42,900.00
1,300,000
.00
Cost of Goods Sold
780,000.0
0
6.
Gross Margin
520,000.0
0
sheet
Less:
Operating Expenses
395,000.0
0
31.
Step
Depreciation
42,000.00
Operating Income
the
83,000.00
Less:
Interest Expense
For
Prepare
balance
as of March
1. Solve for
Account
2,400.00
Receivable
the
80,600.00
receivables
Net Income
Account Receivable
240,000.0
0
Inventory
30,000.00
Total Current Assets
312,900.0
0
Building and Equipment
414,200.0
0
Total Assets
727,100.
00
Liabilities and Equity
Account Payable
82,500.00
Equity:
Common Stock
500,000.0
0
Retained Earnings:
Add:
Less:
Beginning
Net Income
Total
Cash
Dividend
109,000.00
80,600.00
189,600.00
45,000.00
144,600.0
0
IV.
CONCLUSION
A master budget by definition is the aggregation of all lower-level
budgets produced by a company's various functional areas, and also
includes budgeted financial statements, cash forecast, and a financing
plan. The master budget is typically presented in either a monthly or
quarterly format, or usually covers a company's entire fiscal year. An
explanatory text may be included with the master budget, which
explains the company's strategic direction, how the master budget will
assist in accomplishing specific goals, and the management actions
needed to achieve the budget.
In Hillyard Company, determining the expected cash collections,
merchandise purchase budget, expected cash disbursements for
merchandise purchases, expected cash disbursements for selling and
administrative expenses, cash budget, absorption costing income
statement and balance sheet are important factors in the success of
the companys objectives and goals. It shall also properly allocate
resources, provide areas for improvement in determining which part of
the process have bottlenecks and instill a culture of coordination,
sense of sufficiency and aid the company towards meeting budgeted
sales. By determining the production schedule, management can
check whether there would be necessary adjustments needed in labor,
direct materials and all aspect related to the production of the goods.
An estimated of the cash inflows and outflows using the cash budget
can also help the management in properly allocating the resource for
liquidity problems.
RECOMMENDATION
A master budget is the central planning tool that a management team
uses to direct the activities of a corporation, as well as to judge the
performance of its various units. With this Hillyard Company shall
continue using these tools in order to check on possible problems and
plan ahead. Given the Budgeted Balance Sheet, we can see that
Hillyard Company has high Account Receivables. Management may
look into this as an opportunity to check whether they can consider
steps on how to improve the collection method of the company.
From the data of the Budgeted Income Statement, Hillyard Company
forecasted the company to earn $ 80,600.00 which indicates that it is
still earning well. Since the company is maintaining a $30,000 cash
balance and there was an excess of $12,900.00 cash, the management
can create investment programs for these extra cash to generate more
VI.
revenues.
REFERENCES
http://dekushtia.files.wordpress.com/2012
http://www.accountingtools.com/master-budget
CASE 2
I.
II.
January.................. $20,000
$20,000
May........... $1,000
September..
February................ 15,000
..............................25,000
June...........
3,000
October..........
March.....................
5,000
..............................30,000
July............ 10,000
November......
April.......................
3,000
..............................22,000
August....... 14,000
December......
Sales are 20 percent for cash in a given month, with the remainder
going into accounts receivable. All 80 percent of the credit sales are
collected in the month following the sale. Seasonal Products sells all of
its goods for $2 each and produces them for $1 each. Seasonal
Products uses level production, and average monthly production is
equal to annual production divided by 12.
III.
December. The production costs ($1 per unit produced) are paid for in
the month in which they occur. Other cash payments, besides those
for production costs, are $6,000 per month.
d.
ANALYSIS/SOLUTIONS:
Monthly Production and Inventory Schedule in units
Step 1. Calculate the Production Level per month:
Monthly
Sales
20,000.
00
15,000.
00
5,000.
00
3,000.
00
1,000.
00
3,000.
00
10,000.
00
14,000.
00
20,000.
00
25,000.
00
30,000.
00
22,000.
00
Price/U
nit
2
Sales
10,000
7,500
2,500
1,500
500
1,500
5,000
7,000
10,000
12,500
15,000
11,000
Month
January
February
March
April
May
June
July
August
September
October
November
December
Beginning
Inventory
Production
(level)
5,000
2,000
1,500
6,000
11,500
18,000
23,500
25,500
25,500
22,500
17,000
9,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
Sales
Ending
Inventory
($1 per
unit)
2,000
1,500
6,000
11,500
18,000
23,500
25,500
25,500
22,500
17,000
9,000
5,000
10,000
7,500
2,500
1,500
500
1,500
5,000
7,000
10,000
12,500
15,000
11,000
Sales
20% Cash
Sales
80% Prior
Months Sales
Total receipts
Sales
20% Cash
Jan
$20,000
Feb
$15,000
Mar
$5,000
Apr
$3,000
May
$1,000
June
$3,000
4,000
3,000
1,000
600
200
600
12,000
16,000
12,000
4,000
2,400
800
$16,00
0
$19,00
0
$13,000
$4,600
$2,600
$1,400
July
$10,000
2,000
Aug
$14,000
2,800
Sept
$20,000
4,000
Oct
$25,000
5,000
Nov
$30,000
6,000
Dec
$22,000
4,400
Sales
80% Prior
Months Sales
Total receipts
2,400
8,000
11,200
16,000
20,000
24,000
$4,400
$10,80
0
$15,200
$21,00
0
$26,00
0
$28,40
0
Production Cost
($1/unit)
Other cash payments
Total payments
Production Cost
($1/unit)
Other cash payments
Total cash
payments
Jan
7,000.0
0
6,000.0
0
13,000
.00
Feb
7,000.0
0
6,000.0
0
13,000
.00
Mar
7,000.0
0
6,000.0
0
13,000
.00
Apr
7,000.0
0
6,000.0
0
13,000
.00
May
7,000.0
0
6,000.0
0
13,000
.00
June
7,000.0
0
6,000.0
0
13,000
.00
July
7,000.0
0
6,000.0
0
13,000
.00
Aug
7,000.0
0
6,000.0
0
13,000
.00
Sept
7,000.0
0
6,000.0
0
13,000
.00
Oct
7,000.0
0
6,000.0
0
13,000
.00
Nov
7,000.0
0
6,000.0
0
13,000
.00
Dec
7,000.0
0
6,000.0
0
13,000
.00
Jan
Feb
Mar
Apr
May
June
Cash flow
$3,000
-0-
Beginning cash
1,000
$
6,000
4,000
($10,4
00)
1,600
($11,6
00)
1,000
Cumulative cash
balance
Monthly loan or
(repayment)
Cumulative loan
Ending cash balance
4,000
($
8,400)
10,00
0
1,600
(8,800)
-0-
9,800
(10,60
0)
11,600
Cash flow
Beginning cash
Cumulative cash
balance
Monthly loan or
(repayment)
Cumulative loan
Ending cash balance
-0-
10,00
0
-0-
10,00
0
10,00
0
-0-
-0$4,0
00
-0$10,0
00
-0$10,0
00
-0$
1,60
0
9,800
$
1,000
21,400
$
1,000
July
Aug
Sept
Oct
Nov
Dec
($
8,600)
1,000
(7,600
)
8,600
($2,20
0)
1,000
(1,200)
$
2,200
1,000
3,200
$
8,000
1,000
9,000
$15,40
0
1,000
16,400
2,200
(2,200)
30,00
0
$
1,00
0
32,20
0
$
1,000
30,00
0
$
1,000
(8,000
)
22,00
0
$
1,00
0
$13,0
00
1,000
14,00
0
(13,00
0)
9,000
$
1,000
$
7,400
(9,000)
-0-
Month
January
February
March
April
May
June
July
August
Septemb
er
October
Novemb
er
Decembe
r
Monthly
Sales
20,000.00
15,000.00
5,000.00
3,000.00
1,000.00
3,000.00
10,000.00
14,000.00
20% of
Sales
4,000.00
3,000.00
1,000.00
600.00
200.00
600.00
2,000.00
2,800.00
Accounts
Receivable
16,000.00
12,000.00
4,000.00
2,400.00
800.00
2,400.00
8,000.00
11,200.00
20,000.00
4,000.00
16,000.00
25,000.00
5,000.00
20,000.00
30,000.00
6,000.00
24,000.00
22,000.00
4,400.00
17,600.00
Step 2. Summarize the data for the total Assets using the Ending cash
balance for the Cash input and Ending Inventory from the Production
and Inventory Schedule for the Inventory input:
Seasonal Products Corporation
Assets
Month
Cash
Accounts
Receivable
Inventory
Total
Current
January
February
March
April
May
June
July
August
Septembe
r
October
November
December
$ 4,000
10,000
10,000
1,600
1,000
1,000
1,000
1,000
1,000
$16,000
12,000
4,000
2,400
800
2,400
8,000
11,200
16,000
$ 2,000
1,500
6,000
11,500
18,000
23,500
25,500
25,500
22,500
$22,000
23,500
20,000
15,500
19,800
26,900
34,500
37,700
39,500
1,000
1,000
7,400
20,000
24,000
17,600
17,000
9,000
5,000
38,000
34,000
30,000
The asset data above shows the asset build up from the most liquid (cash) to
the least liquid (inventory).
CONCLUSION:
RECOMMENDATION
REFERENCES
http://en.wikipedia.org/wiki/Production_leveling