Profit Planning (Exercises with Answers)

Profit Planning 96. Randall Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows: October 10,000 November 10,000 December Beginning inventory. Merchandise purchases.. 60,000 70,000 10,000 Sales. 60,000 70,000 35,000 Ending inventory. 10,000 10,000 40,000 5,000 Units are sold for $12 each (One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month. Accounts receivable at September 30 totaled $450,000 25-Monit 7520 Month 2 Merchandise is purchased for $7 per unit. (Half of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase, Selling and administrative expenses are expected to total $120,000 each month. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. There is no depreciation, Accounts payable at September 30 totaled $290,000. Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of equipment is scheduled for November, and a dividend of $200,000 is to be paid in December. Required: a. Prepare a schedule of expected cash collections for each of the months of October, November, and December. b. Prepare a schedule showing expected cash disbursements for merchandise purchases and selling and administrative expenses for each of the months October, November, and December. c. Prepare a cash budget for each of the months October, November, and December. There is no minimum required ending cash balance. Sales (at 512 per unit). September accounts receivable..... October sales256 ) November sales. December sales. Total cash collections. October November $720,000, $450.000 December $840,000 $480,000 180,000 $540,000 252 210,000 $630,000 120,000 $630.000 $750,000 $750,000 October November December Merchandise purchases at 57 per unit 5420,000 5490,000 5245,000 Selling and administrative expenses. 120.000 120.000 120.000 Total incurred $$40.000 5610.000 $365.000 Disbursements, previous month.. Disbursements, current month. $290.000 5270,000 -5305,000 279.000 305.000 182.500 Total. $569.000 5575099 5487.500 October November December Beginning cash balance. Add cash receipts. Total cash available. $80,000 $150,000 $25,000 630.000 750,000 750,000 710.000 900.000 775,000 Disbursements: Accounts payable. above 560,000 Payment for equipment. 575,000 487,500 Payment of dividend Total disbursements. 560,000 875,000 687,500 Ending cash balance: $150.000 $25.000 $87.500 Leaming Objective: 09-01 Understand why organizations budget and the processes they use to create budgets Learning Objective: 09-02 Prepare a sales budget, including a schedule of expected cash collections. Learning Objective: 09-07 Prepare a selling and administrative expense budget Learning Objective: 09-08 Prepare a cash budget. Level: 2 Medium 97. Welnor Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: o Sales are budgeted at $320,000 for November, $340,000 for December, and $330,000 for January. o Collections are expected to be 75% In the month of sale 20% in the month following the sale, and 5% juncollectible. Co The cost of goods sold is 65% of sales. o The company desires ending merchandise inventory to equal 80% of the following month's cost of goods sold, Payment for merchandise is made in the month following the purchase. o Other monthly expenses to be paid in cash are $21,000. o Monthly depreciation is $16,000. o Ignore taxes. Sutement of Financial Poution October 31 Assets $22,000 Cash 82,000- Accounts receivable (net of allowance for uncollectible accounts). 166,400 Merchandise inventory... 1179,000 Property, plant and equipment (net of 5658,000 accumulated depreciation). $1.440.400 Total asacts Liabilities and Stockholders Equity Accounts payable $199,000 Common stock. 840,000 Retained earnings 401.400 Total liabilities and stockholders' equity. $1,440.400 Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December c. Prepare Cash Budgets for November and December. d. Prepare Budgeted Income Statements for November and December. e. Prepare a Budgeted Balance Sheet for the end of December.