Data Scenario:You have just been hired into a management position which requires the application of your budgeting skills.You find out that budgeting has not been a priority of the company and that they have been experiencing cash shortages.You have contacted various areas on the organization and have accumulated the information below to assist youin preparing a comprehensive budget.Following is actual information relates to the operations of a merchandiser named Sled Company, a wholesaler of sleds as of March 31.Cash$7,000Accounts receivable15,200Inventory22,960Accounts Payable22,000Actual and Budgeted sales dollar Data-Sales Budget:March (actual)$38,000April$41,000May$42,000June$40,000July$43,000Sales are following type:65% Cash sales collected in month of sale35% Credit sales collected in the following month of saleCredit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.Cost of goods sold equals80% of sales priceAt the end of each month, inventory is to be on hand equal to70% of following month’s sales needs, stated at cost.Inventory purchases are paid47% in month of purchase53% in month after purchaseThe accounts payable at March 31 are a result of March purchases of inventory.Monthly expenses are as follows and are paid in the month incurred if it is a cash expense.Salaries and wages13% of sales dollarRent$2,500 per monthOther cash expenses4% of sales dollarAdvertising$1,000 per monthDepreciation$900 for April onlyDepreciation$1,000 per the months of May and JuneEquipment purchased for cashin May$2,000Required:See page 3621. Prepare a Cash Receipts Budget for the quarter ending June 30th, by month and quarter.You do not need a formal sales budget since the sales budget is above in the data.2. Prepare a merchandise purchase budget by month and quarter. A merchandiser purchases in dollars.I have set up a formatted budget for you. You can see how I have made a few minor changes to Schedule 2 on page 356, which is a production budget which we are not preparing.Make sure you think about the numbers you use in the quarter column.I am specifically talking about how you handle beginning and ending inventory.3. Prepare a Selling and Administrative Expense Budget, by month and quarter.See page 361***My budget is a little bit different than the one in the text, because I used percentage of sales dollar.4. Prepare a Cash Disbursements Budget, by month and quarter.See page 363***5. Prepare a cash budget showing the months and quarter.Use the format I have provided on the budget sheet.Do not worry about a minimum cash balance or financing needs, since we are trying to develop a cash management plan.6. Based on the quarterly cash budget you prepared, do you have any recommendationson cash management. Discuss the type of business and the cash flow problems a company in this industry might have.Type your answer on the budget worksheet , where I have set out the question.7. Prepare a budgeted income statement for the quarter ending June 30, 20XX.You do not need to show monthly columns.I entered Sales for you on the income statement8. What do you think about the survivability of this business?9. What if the company finds out the monthly rent will increase to $2,800, what budgets are effected? Why?What is the New Net income(Loss)?If you have linked everything correctly, you should only have to change the monthly renton this sheet to determine your answer to the questions asked. Please change the rent back to the original amount of 2,500 before you submit.For each error withinbudget2 pts. for each budget1 pt.1 pt.1 pt.#1Sled CompanyCash collections for the quarter ending June 30, 20XXAprilSales Revenue(Given)Cash sales collected in month saleCredit sales Collected in following monthTotal Cash receiptsMayJuneQuarter$41,000$26,65015,200$41,85065%35%#2Sled CompanyMerchandise purchase budgetFor the quarter ended June 30, 20XXAprilMayJuneQuarterSled CompanySelling and administrative Expenses BudgetFor the quarter ended June 30,20XXAprilMayJuneQuarterBudget Cost of goods soldDesired Ending inventoryTotal needsLess: Beginning InventoryTotal purchase cost#3SalesVariable selling and admin. expense %Total variable cash expensesFixed Selling and admin. expenses:RentAdvertisingDepreciationTotal fixed expensesTotal selling and administrative expenses17%#4Sled CompanyCash Disbursements BudgetFor the quarter ended June 30,20XXAprilCost of Merchandise Purchases(from Schedule 2)Cash payments for purchases paid in monthCash payments made in month after purchaseTotal Cash payments for merchandise purchasedOther cash disbursementsMayJuneQuarter47%53%Total of other cash disbursementsTotal cash Disbursements#5Sled CompanyCash BudgetFor the quarter ended June 30, 20XXAprilMayJuneQuarterBeginning cashAdd: Cash ReceiptsCash AvailableLess Cash Disbursements:Ending cash6. Based on the quarterly cash budget you prepared, do you have any recommendationson cash management. Discuss the type of business and the cash flow problems a company in this industry might have.#7Sled CompanyBudgeted Income StatementFor the quarter ended June 30, 20XXSalesCost of goods soldGross marginLess selling and administrative ExpensesOperating income123,0008. What do you think about the survivability of this business?9. What if the company finds out the monthly rent will increase to $2,800, what budgets are effected? Why?What is the New Net income(Loss)?If you have linked everything correctly, you should only have to change the monthly renton this sheet to determine your answer to the questions asked. Please change the rent back to the original amount of 2,500 before you submit.
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