The CELLO Company wants a Master Budget for the next three months beginning January 1, 2009.

It desired an ending minimum cash balance of $4000 each month. Sales are forecasted at average selling prices of $4 per unit. Inventories are supposed to equal 125% of the next months sales in UNITS, except for the end of March. The March 31 inventory in units should be 75% of the next months sales. (i.e. Aprils sales in units). Merchandise costs are $2 per unit. Purchases during any given month are paid in full during the following month. All sales are on credit, payable within 30 days, but experience has shown that 40% of current sales are collected in the current month, 40% in the next month, and 20% in the month thereafter. Bad debts are negligible. (Ignore federal and state income taxes.) Monthly operating expenses are as follows: Wages and salaries (cash) Miscellaneous (cash) Rent Insurance Expired Depreciation $12,000 2,000 100 + 10% of monthly sales 100 100

Cash dividends of $1000 are to be paid Quarterly, beginning January 15, and are declared on the 15th of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $100 is paid at the beginning of each month, and the additional rent of 10% of sales is paid quarterly on the tenth of the month following the quarter. The next settlement is due January 10 th. The CELLO Comapany plans to buy some new furniture and fixtures for $2000 cash in March. Money can be borrowed or repaid in multiples of $500, at an interest rate of 6% per annum. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing takes place at the beginning, and repayment at the END of the months in question. Money is never borrowed at the beginning and repaid at the end of the SAME month. Compute interest to the nearest dollar. (round up). The CELLO Company Balance Sheet 12/31/08 Assets Liabilities Cash $4,000 Accounts Payable (Mdse.) $28,750 Accounts Receivable 16,000 Dividends Payable 1,000 Inventory 31,250 Rent Payable 7,000 Prepaid insurance 1,200 Total Liabilities $36,750 Fixed Assets-net Total 10,000 $62,450 Stockholders Equity Common Sock Retained Earnings Total Total Liabilities & Equity

10,700 15,000 25,700 $62,450

Recent and Forecasted Sales: October $30,000 January $50,000 November $20,000 February $55,000 December $20,000 March $12,000

Recent and Forecasted Sales: October $30,000 January $50,000 April $36,000 November $20,000 February $55,000 December $20,000 March $12,000

Required: Prepare a Master Budget, including a budgeted balance sheet, budgeted income statement, cash flow statement, cash receipts and disbursements (cash budget), and supporting budgets and schedules for the first quarter only of 2009. Explain the roll cash flow analysis plays in the effective management of the organization. What if CELLO did not have access to a bank line of credit? What other sources of cash are available for Management to utilize to bridge cash shortfalls?

hs beginning 0 each month. Sales supposed to equal h. The March 31 s sales in units). are paid in full 0 days, but rrent month, 40% gligible. (Ignore

% of monthly sales

15, and are declared incurred, except g of each month, f the month

for $2000 cash in interest rate of 6% dly. Interest is ing takes place at Money is never Compute interest

e.)

$28,750 1,000 7,000 $36,750

Equity 10,700 15,000 25,700 $62,450

Equity

et, budgeted income budget), and

of the organization. her sources of cash

Monthly operating expenses are as follows: Wages and salaries (cash) $12,000 Miscellaneous (cash) 2,000 Rent 100 + 10% of monthly sales Insurance Expired 100 Depreciation 100 Cash dividends of $1000 are to be paid Quarterly, beginning January 15, and are declared on the 15th of the previous are paid as incurred, except insurance, depreciation, and rent. Rent of $100 is paid at the beginning of each month, a The CELLO Comapany plans to buy some new furniture and fixtures for $2000 cash in March. Money can be borrow

CASH BUDGET
January CASH BALANCE (Beginning) BORROWING Cash BaLANCE after borrowing Add Cash Collections Total cash available Less Disbursements For Inventory Purchases For Operating Expenses Extra Rent For Equipment Purchases For Dividends Total Disbursement Excess/(Deficiency) Of Cash INTEREST REPAYMENT Closing Balance 4000 0 4000 32,000 36,000 28,125 14100 7000 1000 50,225
(14,225.00)

Febuary
(14,225.00)

March
16,957.50

18500 4275 46,000 50,275 625 14100

16957.5 36,800 53,758 12,000 14100 2000

14,725
35,550.00

28100
25,657.50

92.5 18592.5 16,957.50

0 0 25658

on the 15th of the previous month. All operating expenses beginning of each month, and the additional rent of 10% of sales is paid quarterly on the tenth of the month following the quarter arch. Money can be borrowed or repaid in multiples of $500, at an interest rate of 6% per annum. Management wants to minimi

the month following the quarter. The next settlement is due January 10th. m. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assu

hen the principal is repaid. Assume that borrowing takes place at the beginning, and repayment at the END of the months in que

t the END of the months in question. Money is never borrowed at the beginning and repaid at the end of the SAME month. Com

e end of the SAME month. Compute interest to the nearest dollar. (round up).

Westex Products is a wholesale distributor of industrial cleaning products. When the treasurer of Westex Products approach Since the treasurer is unsure as to the particular quarters in which bank financing will be needed, he has assembled the follow a. Budgeted sales and merchandise purchases for next year, as well as actual sales and purchases for the last quarter of the cu Merchandise Sales Purchases Current year Fourth quarter actual $200,000 $126,000 Next year First quarter estimated $300,000 $186,000 Second quarter estimated $400,000 $246,000 Third quarter estimated $500,000 $305,000 Fourth quarter estimated $200,000 $126,000

b. The company normally collects 65% of a quarters sales before the quarter ends and another 33% in the following quarter. c. Eighty percent of a quarters merchandise purchases are paid for within the quarter. The remainder is paid in the following d. Operating expenses for next year are budgeted at $50,000 per quarter plus 15% of sales. Of the fixed amount, $20,000 ea e. The company will pay $10,000 in dividends each quarter. f. Equipment purchases of $75,000 will be made in the second quarter, and purchases of $48,000 will be made in the third qu g. The Cash account contained $10,000 at the end of the current year. The treasurer feels that this represents a minimum ba h. Any borrowing will take place at the beginning of a quarter, and any repayments will be made at the end of a quarter at an i. At present, the company has no loans outstanding. Required: 1. Prepare the following by quarter and in total for next year: a. A schedule of expected cash collections
Recent and Projected

IV Q-Actual Q I- Estimates Q II- Estimates Q III- Estimates Q IV- Estimates

Sales $200,000 300,000 400,000 500,000 200,000

Purchases 126000 186000 246000 305000 126000

Cash collections during Q1 to QIV

Cash Sales in June = 65% of the Sales Collections from Accounts receivables TOTAL COLLECTIONS

Cash payments for merchandize during Q1 to QIV

Cash Purchases Payments made to payables TOTAL Payments

Expected cash disbursements for operating expenses, by quarter and in total, for nex

Operating expenses

3. Prepare a cash budget, by quarter and in total, for next year. Show clearly in your budget the

CASH BALANCE (Beginning) Loan taken Add Cash Collections Total cash available Less Disbursements For Purchases For Operating Expenses For Equipment Purchases Dividend payments Total Disbursement Excess/(Deficiency) Of Cash INTEREST REPAYMENT Closing Balance

Westex Products approached the companys bank late in the current year seeking short-term financing, he was told that money was very t has assembled the following information to assist in preparing a detailed cash budget: r the last quarter of the current year, are:

in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the current years fourth der is paid in the following quarter. ixed amount, $20,000 each quarter is depreciation.

ill be made in the third quarter. These purchases will be for cash. represents a minimum balance that must be maintained. the end of a quarter at an annual interest rate of 10%. Interest is paid only when principal is repaid. All borrowings and all repayments of

Q1 195000 66000 $261,000

Q2 260000 99000 $359,000

Q3 325000 132000 $457,000

Q4 Annual 130000 165000 $295,000 $1,372,000

Q1 148800 25200 $174,000

Q2 196800 37200 $234,000

Q3 244000 49200 $293,200

Q4 100800 61000 $161,800

Annual

$863,000

d in total, for next year

Q1 75000 Q2 90000 Q3 105000 Q4 60000 $330,000

in your budget the quarter(s) in which borrowing will be necessary and the quarter(s) in which repaymen

CASH BUDGET FOR Q1 to Q4

Q1 $10,000 261,000 271,000 174,000 75000 10000 259,000

12,000.00

Q2 12,000.00 359,000 371,000.00 234,000 90000 75000 10000 409,000

(38,000.00)

Q3 (38,000.00)
48,000.00

457,000 467,000.00 293,200 105000 48000 10000 456,200

10,800.00

Q4 9,600.00 1000 295,000 305,600.00 161,800 60000 10000 231,800

73,800.00

1200
12,000.00

(38,000.00)

9,600.00

1225 49,000.00 23,575.00

as told that money was very tight and that any borrowing over the next year would have to be supported by a detailed statement of cash

ced in the current years fourth-quarter actual data.

rowings and all repayments of principal must be in round $1,000 amounts. Interest payments can be in any amount. (Compute interest o

r(s) in which repayments can be made, as requested by the companys bank.

ed by a detailed statement of cash collections and disbursements. The treasurer also was told that it would be very helpful to the bank if

any amount. (Compute interest on whole months, e.g., 1/12, 2/12)

uld be very helpful to the bank if borrowers would indicate the quarters in which they would be needing funds, as well as the amounts th

g funds, as well as the amounts that would be needed, and the quarter in which repayments could be made.

Pro-Forma Income Statement Gamma Manufacturing, Inc., is a manufacturer of electric pencil sharpeners. The following is information regarding Gamma Manufacturing for the fiscal year-end, May 31, 2009: Assume a tax rate of 33%. Prepare a pro-forma income statement for the year ended May 31, 2009, for Gamma Manufacturing, Inc. (Note that Gamma Manufacturing does not have work inprocess inventory.)
Beginning finished goods inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 Ending finished goods inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,000 Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,000 Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,000 Direct materials used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,000 Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000

Personal Budgeting George Marcus, a recent college graduate, has been hired by Taylor Corporation at a salary of $54,000 per year. In anticipation of his salary, George purchased a $20,000 new ski boat and will pay for it at a rate of $425 per month, including interest, for five years. He also rented a condominium for $600 a month and bought a car on account for $350 a month. In addition, George figures that his other monthly expenses will be:
Food expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250 Clothing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Entertainment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Gas and other car expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

1. On the assumption that George also pays income and FICA taxes of 25 and 7.65%, respectively, prepare his monthly budget. 2. George plans to save enough money for a down payment on a house. If a $20,000 down payment is needed, how long will it take him to save the needed amount? (For this exercise, ignore interest on savings, and assume that George does not have any savings at the present time.)

MONTHLY BUDGET Gross Salary Less Federal Income taxes FICA taxes Net take home pay

54000

13500 4131 36369

Less Annual Expenses EMI payments Other Monthly expenses Net Surplus Q2. It will take around : 20000/6609 3.026176 years

16500 13260 6609

to pay for the down payment

ctively,

Personal Budgeting Jennifer Swartz works as an interior decorator for Modern Fashion Corporation. Her annual salary is $36,500. Of that amount, 20% is withheld for federal income taxes, 7.15% for state taxes, 7.65% for FICA taxes, and contribution the United Way. 5% deposited directly into a company union savings. Jennifer has four monthly payments: $225 for her $80 for furniture, $rent, and to repay college loans. Jennifers other monthly expenses approximately:
Food expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . $250 Clothing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100 Entertainment expense . . . . . . . . 125 Utilities expense . . . . . . . 80 Insurance expense . . ... . 30 Gas and maintenance expenses on car . . . . . . . . . . . 180 Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . 200 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . $965

Prepare both a monthly budget and an annual budget for Jennifer that identifies gross salary, net take-home pay, net disposable income, and net surplus or deficit.

Gross Salary Less Federal Income taxes State taxes FICA taxes Net take home pay Less Union Savings Net Disposable Income Less Annual Expenses Four monthly payments Monthly expenses Net Surplus

36500

7300 2609.75 2792.25 23798 1825 21973

900 11580 9493

oration. Her annual xes, 7.15% for state osited nts:

entifies gross salary,

Recent and Forecasted Sales: October $30,000 January $50,000 April $36,000 November $20,000 February $55,000 December $20,000 March $12,000

All sales are on credit, payable within 30 days, but experience has shown that 40% of current sales are collected in in the current month, 30% in the next month, and 10% in the month thereafter.
Schedule of Expected Sales

Totals Sales Cash Sales Credit Sales Quantity

November 20,000 8,000 12,000 5000

December 20,000 8,000 12,000 5000

January 50,000 20,000 30,000 12500

Febuary 55,000 22,000 33,000 13750

Schedule of Expected Cash Collection

November
From Cash Sales

December

From Credit Sales From Credit Sales Total Cash Collected

January 20,000 8,000 4,000 32,000

Febuary 22,000 20,000 4,000 46,000

Inventories are supposed to equal 125% of the next months sales in UNITS, except for the end of March.
The March 31 inventory in units should be 75% of the next months sales. (i.e. Aprils sales in units). Merchandise costs are $2 per unit. Purchases during any given month are paid in full during the following month.

Inventory Purchases Bu

November Ending Inventory in Q Beginning Inventory in Q Sales

Required Purchases

Purchases in Value Cost of Goods Sold

December 15625 15625 5000 5,000 10000

January 17188 15625 12500 14,063 28125 12,500

Febuary 3750 17188 13750 313 625 13,750

Expected Cash Disbursements for Purchases

January 10,000

Febuary 28,125

March 625

INCOME STATEMENT FOR THE QUARTER ENDED 31st MARCH IN$ SALES LESS COST OF GOODS SOLD GROSS PROFIT OPERATING EXPENSES INSURANCE PROFIT BEFORE DEPRECIAITON DEPRECIATION Profit After DEPRECIAITON Interst Profit DIVIDEND Retained Earning
117,000 (29,250) 87,750 (49,300) (300) 38,150 (300) 37,850 (93) 37,758 (1,000) 36,758

BALANCE SHEET FOR THE QUARTER ENDED 31st March IN$ CASH ACCOUNTS RECEIVABLE INVENTORY BUILDING & EQUIPMENT Unexpired Insurance ACCOUNTS PAYABLE RETAINED EARNING Common stock
25658 18200 13500 11700 900 12000 51758 10700

IN$

ent sales are collected in the current month, 40% in the next month, and 20% in the month thereafter. Bad debts are negligible. (Ignore f

March 12,000 4,800 7,200 3000

Ist Quarter 117,000

March 4,800 22,000 10,000 36,800 Accounts Receivable

Ist Quarter

7200 11000 18200

d of March.

Merchandise costs

Inventory Purchases Budgets

March 6750 3750 3000 6,000 12000 3,000

April

Ist Quarter

9000

29250

38,750

Accounts Payable

12000

ts are negligible. (Ignore federal and state income taxes.)