Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.
a. As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following account balances:
Accounts Receivable 48,000
Building and equipment 214,100
Accounts Payable $18,300
Capital Stock 190,000
Retained Earnings 75,400
Total $283,700 $283,700
b. Actual sales for March and budgeted sales for April-July are as follows:
Actual Budgeted Budgeted Budgeted Budgeted
March April May June July $245,000
$60,000 $70,000 $85,000 $90,000 $50,000
c. Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The A/R at March 31 are a result of March credit sales.
d. The company’s gross margin % is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
e. Monthly expenses are budgeted as follows:
Salaries and wages $7,500 per month
Shipping 6% of sales
Advertising $6,000 per month
Other expenses 4% of sales
Depreciation, including depreciation on new
assets acquired during the quarter, will be $6,000 for the quarter
f. Each month’s EI should equal 30% of the following month’s COGS
g. Half of a month’s inventory purchases are paid for in the month of purchase and half in the following month.
h. Equipment purchases during the quarter will be as follows:
i. Dividends declared and paid in June $3,500
j. Management wants to maintain a minimum cash balance of $8,000. $8,000 The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% 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.
Using the data above, complete the following statements and schedules for the second quarter:
1. Schedule of expected cash collections:
2. a. Merchandise purchases budget:
b. Schedule of expected cash disbursement for merchandise purchases:
3. Schedule of expected cash disbursements for selling & administrative
4. Cash Budget:
5. Prepare an absorption costing I/S statement for the quarter ending June 30
6. Prepare a balance sheet as of June 30.