Budgeted Income Statement of Cravat Sales Company

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Case 9-23
1.
a.
Sales budget:
April
May
June
Quarter

Budgeted sales in units
35,000
45,000
60,000
140,000

Selling price per unit
   ×   $8
   ×   $8
    ×   $8
      ×    $8

Total sales
$280,000
$360,000
$480,000
$1,120,000

b.
Schedule of expected cash collections:

February sales
$ 48,000

$    48,000

March sales
112,000
$ 56,000

168,000

April sales
70,000
140,000
$ 70,000
280,000

May sales

90,000
180,000
270,000

June sales
             
             
 120,000
    120,000

Total cash collections
$230,000
$286,000
$370,000
$  886,000

c.
Merchandise purchases budget:

Budgeted sales in units
35,000
45,000
60,000
140,000

Add budgeted ending inventory*
   40,500
   54,000
   36,000
     36,000

Total needs
75,500
99,000
96,000
176,000

Less beginning inventory
   31,500
   40,500
   54,000
     31,500

Required unit purchases
  44,000
58,500
42,000
144,500

Unit cost
    ×   $5
    ×   $5
    ×   $5
     ×    $5

Required dollar purchases
$220,000
$292,500
$210,000
$  722,500

*90% of the next month’s sales in units.

d.
Budgeted cash disbursements for merchandise purchases:

April
May
June
Quarter

March purchases
$ 85,750

$   85,750

April purchases
110,000
$110,000

220,000

May purchases

146,250
$146,250
292,500

June purchases
             
             
 105,000
    105,000

Total cash disbursements
$195,750
$256,250
$251,250
$  703,250

2.
Cravat Sales Company

Cash Budget

For the Three Months Ending June 30

April
May
June
Quarter
Cash balance, beginning
$ 14,000
$ 10,250
$ 10,000
$ 14,000
Add receipts from customers (Part 1 b.)
 230,000
 286,000
 370,000
 886,000
Total cash available
 244,000
 296,250
 380,000
 900,000
Less disbursements:

Purchase of inventory (Part 1 d.)
195,750
256,250
251,250
703,250
Sales commissions
35,000
45,000
60,000
140,000
Salaries and wages
22,000
22,000
22,000
66,000
Utilities
14,000
14,000
14,000
42,000
Miscellaneous
3,000
3,000
3,000
9,000
Dividends paid
12,000
0
0
12,000
Land purchases
          0
   25,000
          0
   25,000
Total disbursements
 281,750
 365,250
 350,250
 997,250
Excess (deficiency) of receipts over disbursements
 (37,750)
 (69,000)
   29,750
 (97,250)
Financing:

Borrowings
48,000
79,000
0
127,000
Repayments*
0
0
(16,000)
(16,000)
Interest*
           0
           0
   (3,020)
   (3,020)
Total financing
   48,000
   79,000
 (19,020)
  107,980
Cash balance, ending
$ 10,250
$ 10,000
$ 10,730
$ 10,730

*This is the maximum amount (in increments of $1,000) that the company could repay to the bank and still have at least a $10,000 ending balance.

**
$48,000 × 1% × 3
=
$1,440

$79,000 × 1% × 2
=
 1,580

Total interest
=
$3,020

3.
Cravat Sales Company

Budgeted Income Statement

For the Three Months Ended June 30

Sales revenue (Part 1 a.)

$1,120,000

Variable expenses:

Cost of goods sold
(140,000 ties @ $5 per tie)
$700,000

Commissions
(140,000 ties @ $1 per tie)
 140,000
    840,000

Contribution margin

280,000

Fixed expenses:

Wages and salaries
66,000

Utilities
42,000

Insurance expired
3,600

Depreciation
4,500

Miscellaneous
     9,000
     125,100

Net operating income

154,900

Less interest expense

        3,020

Net income

$   151,880

Case 11-30
1.Flexible budgets would allow Mark Fletcher to directly compare SoftGro’s actual selling expenses (based on the current month’s actual activity) with the budgeted selling expenses. In general, flexible budgets:

provide...
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