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Problem 8-29 Completing a Master Budget
Special instructions: Complete Requirements 1, 2, and 3 of Exercise 8-29 by completing the relevant tables on this document. For Requirements 4, and 5, use Microsoft Excel.
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
Current assets as of March 31:
Cash $8,000
Accounts receivable $20,000
Inventory $36,000
Building and equipment, net $120,000
Accounts payable $21,750
Common stock $150,000
Retained earnings $12,250
a. The gross margin is 25%
b. Actual and budgeted sales data
March (actual) $50,000
April $60,000
May $72,000
June $90,000
July $48,000
c. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
d. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
e. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
f. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets).
g. Equipment costing $1,500 will be purchased for cash in April.
h. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. 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, replay the loan plus accumulated interest at the end of the quarter.
Using the preceding data:
1. Complete the following schedule
Schedule of Expected Cash Collections
April May June Quarter
Cash sales $36,000
Credit sales 20,000
Total collections $56,000
2. Complete the following:
Merchandise Purchases Budget
April May June Quarter
Budgeted cost of goods sold $45,000*
Add desired ending inventory 43,200+
Total needs 88,200
Less beginning inventory 36,000
Required purchases $52,000
*For April sales: $60,000 sales x 75% cost ratio = $45,000
+$54,000 x 80% = $43,200
Schedule of Expected Cash Disbursements—Merchandise Purchases
April May June Quarter
March purchases $21,750 $21,750
April purchases 26,100 $26,100 52,200
May purchases
June purchases
Total disbursements $47,850
3. Complete the following cash budget:
Cash Budget
April May June Quarter
Beginning cash balance $8,000
Add cash collections 56,000
Total cash available 64,000
Less cash disbursements:
For inventory 47,850
For expenses 13,300
For equipment 1,500
Total cash disbursements 62,650
Excess (deficiency) of cash 1,350
4. Using Schedule 9 on page 384 of your textbook as your guide, prepare an absorption costing income statement for the quarter ended June 30.
5. Prepare a balance sheet as of June 30.
Exercise 9-5 Prepare a Flexible Budget with More Than One Cost Driver
Special instructions: Complete the requirement for Exercise 9-5 using Microsoft Excel. Use Exhibit 9-9 in your textbook as your guide.
Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:
Fixed cost per month Cost per Cruise Cost per Passenger
Vessels operating costs $5,200 $480.00 $2.00
Advertising $1,700
Administrative costs $4,300 $24.00 $1.00
Insurance $2,900
For example, vessel operating costs should be $5,200 per month plus $480 per cruise plus $2 per passenger. The company’s sales should average $25 per passenger. In July, the company provided 24 cruises for a total of 1,400 passengers.
Using Exhibi

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