Embry-Riddle ACCT 312 Module 6 Case Study

MGMT 312
Preparation of a Complete Master Budget Problem
7-5A
Near the end of 2011, the
management of Simid Sports Co., a manufacturing company, prepared the following
estimated balance sheet for December 31, 2011.
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To prepare a master budget for
January, February, and March of 2012, management gather the following
information:
·
Simid Sports’ single
product is purchased for $30 per unit and resold for $55 per unit. The expected
inventory level of 2,500 units on December 31, 2011, is more than management’s
desired level for 2012 which is 20% of the next month’s expected sales (in
units). Expected sales are: January, 3,500 units; February, 4,500 units;
March, 5,500 units; and April, 5,000 units.
·
Cash sales and credit
sales represent 25% and 75%, respectively, of total sales. Of the credit sales,
60% is collected in the first month after the month of sale and 40% in
the second month after the month of sale. For the December 31, 2011, accounts
receivable balance, $62,500 is collected in January and the remaining $200,000
is collected in February.
·
Merchandise purchases
are paid for as follows: 20% in the first month after the month of
purchase and 80% in the second month after purchase. For the December 31,
2011, accounts payable balance, $40,000 is paid in January and the remaining
$140,000 is paid in February.
·
Sales commissions
equal to 20% of sales are paid each month. Sales salaries (excluding
commissions) are $30,000 per year.
·
General and administrative
salaries are $72,000 per year. Maintenance expense equals $1,000 per month
and is paid in cash.
·
Equipment reported in
the December 31, 2011, balance sheet was purchased in January 2011. It is being
depreciated over eight years using the straight-line method with no salvage
value. The following amounts for new equipment purchases are planned in the
coming quarter: January, $18,000; February, $48,000; and March,
$14,400. This equipment will be depreciated using 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
acquire land at the end of March at a cost of $75,000, which will be paid for
with cash on the last day of the month.
·
Simid Sports 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 $12,500 each month.
·
The income tax rate
for the company is 40%. 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 2012, include the following component budgets (show
supporting calculations as needed, and round amounts to the nearest dollar):