BMAL 530 Connect Homework 6 solutions complete answers

BMAL 530 Connect Homework 6 solutions complete answers

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Question 1

 

Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow.

 

All sales are on credit. Recent experience shows that 24% of credit sales is collected in the month of the sale, 46% in the month after the sale, 27% in the second month after the sale, and 3% proves to be uncollectible. The product’s purchase price is $110 per unit. 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 19% of the next month’s unit sales plus a safety stock of 200 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,656,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $110,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $110,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate. On May 31, the loan balance is $49,000, and the company’s cash balance is $110,000.

 

1. Prepare a schedule that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.

 

2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.

 

3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.

 

4. Prepare a schedule showing the computation of cash payments for product purchases for June and July.

 

5. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month.

 

Question 2

 

Near the end of 2019, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2019.

 

To prepare a master budget for January, February, and March of 2020, management gathers the following information.

 

The company’s single product is purchased for $30 per unit and resold for $59 per unit. The expected inventory level of 5,250 units on December 31, 2019, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are January, 7,000 units; February, 8,750 units; March, 10,750 units; and April, 10,500 units.

 

Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 63% is collected in the first month after the month of sale and 37% in the second month after the month of sale. For the December 31, 2019, accounts receivable balance, $125,000 is collected in January 2020 and the remaining $395,000 is collected in February 2020.

 

Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining $290,000 is paid in February 2020.

 

Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $60,000 per year.

 

General and administrative salaries are $156,000 per year. Maintenance expense equals $2,100 per month and is paid in cash.

 

Equipment reported in the December 31, 2019, balance sheet was purchased in January 2019. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $38,400; February, $100,800; and March, $26,400. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month’s depreciation is taken for the month in which equipment is purchased.

 

The company plans to buy land at the end of March at a cost of $175,000, which will be paid with cash on the last day of the month.

 

The company has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $20,000 at the end of each month.

 

The income tax rate for the company is 37%. Income taxes on the first quarter’s income will not be paid until April 15.

 

Prepare a master budget for each of the first three months of 2020; include the following component budgets.

 

1. Monthly sales budgets.

 

2. Monthly merchandise purchases budgets.

 

3. Monthly selling expense budgets.

 

4. Monthly general and administrative expense budgets.

 

5. Monthly capital expenditures budgets.

 

6. Monthly cash budgets.

 

7. Budgeted income statement for the entire first quarter (not for each month).

 

8. Budgeted balance sheet as of March 31, 2020.