Вы находитесь на странице: 1из 18

I.

TITLE OF THE CASE:

Completing a Master Budget (Hillyard

Company)
II.
FACTS OF THE CASE:
a.
Hillyard Company, an office supplies specialty store, prepares its
master budget on a quarterly basis. The following data have been
assembled to assist in preparing the master budget for the first
quarter:
As of December 31 (the end of the prior quarter), the companys
general ledger showed the following account Balances:
Debits
Cash
Account Receivable
Inventory
Building and Equipment

48,000
224,00
0
60,000
370,00
0

Account Payable
Capital Stock
Retained Earnings
Totals $

b.

Credit
s

702,0
00

93,000
500,00
0
109,00
0
702,0
00

Actual sales for December and budgeted sales for the next four
months are as follows:
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11

c.

$280,000
400,000
600,000
300,000
200,000

Sales are 20% for cash and 80% on credit. All payments on credit
sales are collected in the month following sale. The accounts
receivable at December 31 are a result of December credit sales.

d.

The companys gross margin is 40% of sales. (In other words, cost

e.

of goods sold is 60% of sales.)


Monthly expenses are budgeted as follows: salaries and wages,
$27,000 per month: advertising, $70,000 per month; shipping, 5%
of sales; other expenses, 3% of sales. Depreciation, including
depreciation on new assets acquired during the quarter, will be

f.

$42,000 for the quarter.


Each months ending inventory should equal 25% of the following

g.

months cost of goods sold.


One-half of a months inventory purchases is paid for in the month

h.

of purchase; the other half is paid in the following month.


During February, the company will purchase a new copy machine
for $1,700 cash. During March, other equipment will be purchased

i.

for cash at a cost of $84,500.


During January, the company will declare and pay $45,000 in cash

j.

dividends.
Management wants to maintain a minimum cash balance of
$30,000. The company has an agreement with a local bank that
allows the company to borrow at the beginning of each month. The
interest rate on these loans is 12% per month and for simplicity we
will assume that interest is not compounded. The company would,
as far as it is able, repay the loan plus accumulated interest at the
end of the quarter.

III.

ANALYSIS/SOLUTIONS:
Using the data above, complete the following statements and
schedules for the first quarter:

Step 1. In order to complete the requirements, identify first the Sales


Budget for the end quarter from the given above:
Hillyard Company
Sales Budget
For the Quarter ended March 30,2011
January
Budgeted Sales in
Dollars
Total Budgeted
Sales $

February

400,000.00
400,000.0
0

600,000.00
600,000.0
0

March
300,000.00
300,000.0
0

Quarter
1,300,000.00
1,300,000.0
0

1. Complete the schedule of expected cash collection:


Given that credit shall be collected the following month and only
the cash can be reflected in the collection of the current month,
below are the corresponding monthly data for the expected cash
collection.
Hillyard Company
Expected Cash Collection
For the Quarter ended March 30,2011
January
Account Receivable
December 31 (80% of
280,000.00)
January 2011 Sales
o
20% f
400,000.00
o
80% f
400,000.00
February 2011 Sales
20%

o
f

600,000.00

o
80% f
600,000.00
March 2011 Sales

February

March

Quarter

224,000.0
0

224,000.00

80,000.00

80,000.00
320,000.0
0

320,000.00

120,000.0
0

120,000.00
480,000.0
0

480,000.00

20%

o
f

300,000.00

Total Cash Collection

304,000.
00

440,000.
00

60,000.00

60,000.00

540,000.
00

1,284,000.
00

2.a. Calculate for the merchandise purchases budget:


Step 1. Calculate for the Budgeted Cost of Goods Sold:
January

February

March

Quarter

400,000.00

600,000.0
0

300,000.0
0

1,300,000.0
0

160,000.00

240,000.0
0

120,000.0
0

520,000.00

240,000.00

360,000.
00

180,000.
00

780,000.00

Sales in Dollars
Gross Margin
Budgeted Cost of
Goods Sold $

Step 2. Calculate for the Desired Ending Inventory:

Cost of Goods Sold for Next Month

January
360,000.00

Percentage of Next Month's COGS


Desired Ending Inventory
$

0.25
90,000.0
0

February
180,000.0
0
0.25
45,000.0
0

March
120,000.0
0
0.25
30,000.0
0

Step 3. Summarize the data for the Merchandise Purchases


Budget:
Hillyard Company
Inventory Purchase Budget
For the Quarter ended March 30,2011

Budgeted Cost of Goods Sold

January
240,000.0
0

Add: Desired Ending Inventory

90,000.00

Total Needs

330,000.0
0

Less: Beginning Inventory

60,000.00

Februar
y
360,000.
00
45,000.0
0
405,000.
00
90,000.0
0

March
180,000.
00
30,000.0
0
210,000.
00
45,000.0
0

Quarter
780,000.0
0
30,000.00
810,000.0
0
60,000.00

Required Inventory Purchase


$

270,000.
00

315,000
.00

165,000
.00

750,000.
00

2.b Calculate for the Schedule of Expected Cash DisbursementsMerchandise Purchases


Step 1. Calculate for the monthly purchases considering the
payment scheme of paying half for the current month and the other
half on to the next month:
Hillyard Company
Cash Disbursement for Purchase
For the Quarter ended March 30,2011
January

December Purchase

93,000.0
0

January Purchase (50% 0f


270,000.00)

135,000.
00

Februar
y

Quarter

93,000.00
135,000.
00

February Purchase (50%


315,000.00)

157,500.
00

March Purchase (50% of


165,000.00)
Total Cash Disbursement for
Purchase
$

March

228,000.
00

292,500.
00

270,000.0
0
157,500.
00

315,000.0
0

82,500.0
0

82,500.00

240,000.
00

760,500.0
0

3. Complete the Cash Disbursement for Operating Expenses:


Step 1. Calculate for the monthly Other Expenses

Sales
Percentage of Sales for other
expenses
Other Expenses
$

January
400,00
0.00
0.03

February
600,000
.00
0.03

March
300,000
.00
0.03

12,000
.00

18,000
.00

9,000
.00

Step 2. Calculate for the monthly Shipping Expenses


January

February

March

Sales
Percentage of Sales for shipping
expenses
Shipping Expenses
$

400,00
0.00
0.05

20,000.00

600,000
.00
0.05

300,000
.00
0.05

30,000.0
0

15,000.0
0

Step 3. Complete the Cash Disbursement for Operating Expenses


table
Hillyard Company
Cash Disbursement for Operating Expenses
For the Quarter ended March 30,2011
January

February

March

Quarter

27,000.00

27,000.00

27,000.00

81,000.00

70,000.00

70,000.00

70,000.00

210,000.00

20,000.00

30,000.00

15,000.00

65,000.00

12,000.00

18,000.00

9,000.00

39,000.00

129,000.
00

145,000.
00

121,000.
00

395,000.0
0

Salaries and Wages


Advertising
Shipping Expenses
Other Expenses
Total Cash
Disbursement

4. Complete the Cash Budget:


Step 1: Summarize all cash transactions

Hillyard Company
Cash Budget
For the Quarter ended March 30,2011
Beginning Cash
Balance
Add: Cash
Collection

January

February

March

Quarter

48,000.00

30,000.00

30,800.00

48,000.00

304,000.0
0

440,000.0
0

540,000.0
0

1,284,000.0
0

352,000.0
0

470,000.0
0

570,800.0
0

1,332,000.0
0

228,000.0
0

292,500.0
0

240,000.0
0

760,500.00

129,000.0
0

145,000.0
0

121,000.0
0

395,000.00

1,700.00

84,500.00

86,200.00

45,000.00

45,000.00

402,000.0
0

439,200.0
0

445,500.0
0

1,286,700.0
0

(50,000.00
)

30,800.00

125,300.0
0

45,300.00

Total Cash Available

Less: Cash
Disbursement
Inventory
Purchase
Operating
Expense
Equipment
Purchase
Cash Dividend
Total Cash
Disbursement
Excess/Deficiency

Financi
ng:
Borrowing
80,000.00

80,000.00

Repayments
-

(80,000.00
)

(80,000.00)

(2,400.00)

(2,400.00)

Interest
Total Financing

Ending Cash
Balance

80,000.00

(82,400.00
)

(2,400.00)

30,000.0
0

30,800.0
0

42,900.0
0

42,900.00

Step 2: Interest was obtained using the following data:

Since the company required to maintain a minimum cash balance of


$30,000.00 and a $50,000.00 cash deficiency was posted after
summarizing the cash transactions, a borrowing worth $80,000.00
must be done to finance these requirements.
Using the $80,000 principal amount and the interest rate of 12% we
calculate the interest:
I=Pxrxt
Where P = principal amount = $80,000
r = interest rate = 12%
t = interest time = 3/12 (quarterly)
Interest = $80,000 x .12 x .25
Interest = $2,400

5. Prepare an absorption costing income statement for the quarter


ending March 31 as shown in Schedule 9 in the chapter:
Hillyard Company
Budgeted Income Statement
For the Quarter ended March 30, 2011
Sales
Less:

1,300,000
.00
Cost of Goods Sold
780,000.0
0

6.

Gross Margin
520,000.0
0

sheet

Less:

Operating Expenses
395,000.0
0

31.
Step

Depreciation
42,000.00
Operating Income

the

83,000.00
Less:

Interest Expense

For

Prepare

balance
as of March
1. Solve for
Account

2,400.00

Receivable
the

80,600.00

receivables

Net Income

of sales on credit for the month of March amounting to 80% of


$300,000.00:
Account Receivable = 80% * $300,000
Account Receivable = $ 240,000
Step 2. Solve for the Building and Equipment
Total B&E = Beginning B&E + New Purchases Depreciation
Total B&E = $370,000 + ($84,500 + $1,700.00) - $42,500.00
Total B&E = $370,000 + $ 86,200 - $42,000
Total Building and Equipment = $414,200.00
Step 3. Solve for Account Payable:
For the payment of March purchases amounting to 50% of the
$165,000.00
Account Payable = 50% * $165,000
Account Payable = $82,500
Hillyard Company
Budgeted Balance Sheet
As of Quarter ended March 30, 2011
Current Assets
Cash
42,900.00

Account Receivable

240,000.0
0

Inventory

30,000.00
Total Current Assets
312,900.0
0
Building and Equipment
414,200.0
0
Total Assets
727,100.
00
Liabilities and Equity
Account Payable
82,500.00
Equity:
Common Stock
500,000.0
0

Retained Earnings:
Add:
Less:

Beginning
Net Income
Total
Cash
Dividend

109,000.00
80,600.00
189,600.00
45,000.00

144,600.0
0

Total Liability and Equity


727,100.
00

IV.

CONCLUSION
A master budget by definition is the aggregation of all lower-level
budgets produced by a company's various functional areas, and also
includes budgeted financial statements, cash forecast, and a financing
plan. The master budget is typically presented in either a monthly or
quarterly format, or usually covers a company's entire fiscal year. An
explanatory text may be included with the master budget, which
explains the company's strategic direction, how the master budget will
assist in accomplishing specific goals, and the management actions
needed to achieve the budget.
In Hillyard Company, determining the expected cash collections,
merchandise purchase budget, expected cash disbursements for
merchandise purchases, expected cash disbursements for selling and
administrative expenses, cash budget, absorption costing income
statement and balance sheet are important factors in the success of
the companys objectives and goals. It shall also properly allocate
resources, provide areas for improvement in determining which part of
the process have bottlenecks and instill a culture of coordination,
sense of sufficiency and aid the company towards meeting budgeted
sales. By determining the production schedule, management can
check whether there would be necessary adjustments needed in labor,
direct materials and all aspect related to the production of the goods.
An estimated of the cash inflows and outflows using the cash budget
can also help the management in properly allocating the resource for

revenue generating activities and as checking mechanism for possible


V.

liquidity problems.
RECOMMENDATION
A master budget is the central planning tool that a management team
uses to direct the activities of a corporation, as well as to judge the
performance of its various units. With this Hillyard Company shall
continue using these tools in order to check on possible problems and
plan ahead. Given the Budgeted Balance Sheet, we can see that
Hillyard Company has high Account Receivables. Management may
look into this as an opportunity to check whether they can consider
steps on how to improve the collection method of the company.
From the data of the Budgeted Income Statement, Hillyard Company
forecasted the company to earn $ 80,600.00 which indicates that it is
still earning well. Since the company is maintaining a $30,000 cash
balance and there was an excess of $12,900.00 cash, the management
can create investment programs for these extra cash to generate more

VI.

revenues.
REFERENCES
http://dekushtia.files.wordpress.com/2012
http://www.accountingtools.com/master-budget

CASE 2
I.
II.

TITLE OF THE CASE: Seasonal Products Corporation


FACTS OF THE CASE:
Seasonal Products Corporation expects the following monthly sales:

January.................. $20,000
$20,000

May........... $1,000

September..

February................ 15,000
..............................25,000

June...........

3,000

October..........

March.....................
5,000
..............................30,000

July............ 10,000

November......

April.......................
3,000
..............................22,000

August....... 14,000

December......

Total annual sales = $168,000

Sales are 20 percent for cash in a given month, with the remainder
going into accounts receivable. All 80 percent of the credit sales are
collected in the month following the sale. Seasonal Products sells all of
its goods for $2 each and produces them for $1 each. Seasonal
Products uses level production, and average monthly production is
equal to annual production divided by 12.

III.

STATEMENT OF THE PROBLEM/REQUIRED:


a. Generate a monthly production and inventory schedule in units.
Beginning inventory in January is 5,000 units. (Note: To do part a, you
should work in terms of units of production and units of sales.)
b.

Determine a cash receipts schedule for January through

December. Assume that dollar sales in the prior December were


$15,000. Work part b using dollars.
c.

Determine a cash payments schedule for January through

December. The production costs ($1 per unit produced) are paid for in
the month in which they occur. Other cash payments, besides those
for production costs, are $6,000 per month.
d.

Construct a cash budget for January through December. The

beginning cash balance is $1,000, and that is also the required


minimum.
e.

Determine total current assets for each month. (Note: Accounts

receivable equal sales minus 20 percent of sales for a given month.


IV.
a.

ANALYSIS/SOLUTIONS:
Monthly Production and Inventory Schedule in units
Step 1. Calculate the Production Level per month:

Annual Production in units = Annual Sales / Sales Price per unit


= $168,000 / $2
Annual Production in units = 84,000 units
Production level per month = Annual Production in units / 12
= 84,000/12 months
Production level per month = 7,000 units/month
Step 2. Calculate the monthly Sales in units
Seasonal Products Corporation
Monthly Sales in Units
Month
January
February
March
April
May
June
July
August
Septemb
er
October
Novembe
r
Decembe
r

Monthly
Sales
20,000.
00
15,000.
00
5,000.
00
3,000.
00
1,000.
00
3,000.
00
10,000.
00
14,000.
00
20,000.
00
25,000.
00
30,000.
00
22,000.
00

Price/U
nit
2

Sales
10,000

7,500

2,500

1,500

500

1,500

5,000

7,000

10,000

12,500

15,000

11,000

Step 3. Complete the Monthly Production and Inventory Schedule


in units using the formula below:
Ending Inventory = Beginning Inventory + Production
(level) Sales
Seasonal Products Corporation
Monthly Production and Inventory Schedule

Month

January
February
March
April
May
June
July
August
September
October
November
December

Beginning
Inventory

Production
(level)

5,000
2,000
1,500
6,000
11,500
18,000
23,500
25,500
25,500
22,500
17,000
9,000

7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000
7,000

Sales

Ending
Inventory
($1 per
unit)
2,000
1,500
6,000
11,500
18,000
23,500
25,500
25,500
22,500
17,000
9,000
5,000

10,000
7,500
2,500
1,500
500
1,500
5,000
7,000
10,000
12,500
15,000
11,000

b. Prepare a Cash Receipts Schedule


Step 1. From the given data, solve first for the Cash Sales of
January using Decembers data:
January Prior Months Sales = December Sales * 80%
= $15,000 * .80
January Prior Months Sales = $12,000.00
Step 2. Complete the monthly Cash Receipts Schedule from
January through December:

Seasonal Products Corporation


Cash Receipts Schedule

Sales
20% Cash
Sales
80% Prior
Months Sales
Total receipts

Sales
20% Cash

Jan
$20,000

Feb
$15,000

Mar
$5,000

Apr
$3,000

May
$1,000

June
$3,000

4,000

3,000

1,000

600

200

600

12,000

16,000

12,000

4,000

2,400

800

$16,00
0

$19,00
0

$13,000

$4,600

$2,600

$1,400

July
$10,000
2,000

Aug
$14,000
2,800

Sept
$20,000
4,000

Oct
$25,000
5,000

Nov
$30,000
6,000

Dec
$22,000
4,400

Sales
80% Prior
Months Sales
Total receipts

2,400

8,000

11,200

16,000

20,000

24,000

$4,400

$10,80
0

$15,200

$21,00
0

$26,00
0

$28,40
0

c. Accomplish the Cash Payments Schedule for January through


December
Step 1. Complete the Cash Payments Schedule using the given
data:
Seasonal Products Corporation
Cash Payments Schedule
Constant production

Production Cost
($1/unit)
Other cash payments
Total payments

Production Cost
($1/unit)
Other cash payments
Total cash
payments

Jan
7,000.0
0
6,000.0
0
13,000
.00

Feb
7,000.0
0
6,000.0
0
13,000
.00

Mar
7,000.0
0
6,000.0
0
13,000
.00

Apr
7,000.0
0
6,000.0
0
13,000
.00

May
7,000.0
0
6,000.0
0
13,000
.00

June
7,000.0
0
6,000.0
0
13,000
.00

July
7,000.0
0
6,000.0
0
13,000
.00

Aug
7,000.0
0
6,000.0
0
13,000
.00

Sept
7,000.0
0
6,000.0
0
13,000
.00

Oct
7,000.0
0
6,000.0
0
13,000
.00

Nov
7,000.0
0
6,000.0
0
13,000
.00

Dec
7,000.0
0
6,000.0
0
13,000
.00

d. Construct a cash budget for January through December using the


formulas below:
Cumulative Balance = Cash flow + Beginning Cash
Cumulative Loan (current) = Monthly Loan or repayment
(previous month if there is any) + Monthly Loan or repayment of
current month
Ending Balance = Cumulative Balance + Monthly Loan or
repayment of current month
Seasonal Products Corporation
Cash Payments Schedule
Cash Budget

Jan

Feb

Mar

Apr

May

June

Cash flow

$3,000

-0-

Beginning cash

1,000

$
6,000
4,000

($10,4
00)
1,600

($11,6
00)
1,000

Cumulative cash
balance
Monthly loan or
(repayment)
Cumulative loan
Ending cash balance

4,000

($
8,400)
10,00
0
1,600

(8,800)

-0-

9,800

(10,60
0)
11,600

Cash flow
Beginning cash
Cumulative cash
balance
Monthly loan or
(repayment)
Cumulative loan
Ending cash balance

-0-

10,00
0
-0-

10,00
0
10,00
0
-0-

-0$4,0
00

-0$10,0
00

-0$10,0
00

-0$
1,60
0

9,800
$
1,000

21,400
$
1,000

July

Aug

Sept

Oct

Nov

Dec

($
8,600)
1,000
(7,600
)
8,600

($2,20
0)
1,000
(1,200)

$
2,200
1,000
3,200

$
8,000
1,000
9,000

$15,40
0
1,000
16,400

2,200

(2,200)

30,00
0
$
1,00
0

32,20
0
$
1,000

30,00
0
$
1,000

(8,000
)
22,00
0
$
1,00
0

$13,0
00
1,000
14,00
0
(13,00
0)
9,000
$
1,000

$
7,400

(9,000)
-0-

The data above showed how Seasonal Products Corporation managed to


schedule the availment of loans and repayments.

e. Determine total monthly assets:


Step 1. Solve for the Accounts Receivables:
Given that Accounts Receivable = Monthly Sales 20% of
Monthly Sales

Month
January
February
March
April
May
June
July
August
Septemb
er
October
Novemb
er
Decembe
r

Monthly
Sales
20,000.00
15,000.00
5,000.00
3,000.00
1,000.00
3,000.00
10,000.00
14,000.00

20% of
Sales
4,000.00
3,000.00
1,000.00
600.00
200.00
600.00
2,000.00
2,800.00

Accounts
Receivable
16,000.00
12,000.00
4,000.00
2,400.00
800.00
2,400.00
8,000.00
11,200.00

20,000.00

4,000.00

16,000.00

25,000.00

5,000.00

20,000.00

30,000.00

6,000.00

24,000.00

22,000.00

4,400.00

17,600.00

Step 2. Summarize the data for the total Assets using the Ending cash
balance for the Cash input and Ending Inventory from the Production
and Inventory Schedule for the Inventory input:
Seasonal Products Corporation
Assets
Month

Cash

Accounts
Receivable

Inventory

Total
Current

January
February
March
April
May
June
July
August
Septembe
r
October
November
December

$ 4,000
10,000
10,000
1,600
1,000
1,000
1,000
1,000
1,000

$16,000
12,000
4,000
2,400
800
2,400
8,000
11,200
16,000

$ 2,000
1,500
6,000
11,500
18,000
23,500
25,500
25,500
22,500

$22,000
23,500
20,000
15,500
19,800
26,900
34,500
37,700
39,500

1,000
1,000
7,400

20,000
24,000
17,600

17,000
9,000
5,000

38,000
34,000
30,000

The asset data above shows the asset build up from the most liquid (cash) to
the least liquid (inventory).
CONCLUSION:

Seasonal Products Corporation approach in using the level production method


is useful since the projected sales are not balanced. Sales climb up starting
only from July to peak on November and start to slow down starting January.
This imbalance in sales projection can pose a problem if production schedule
is not carefully planned. When the company has spikes in production
demand, it might need to pay overtime, add a shift or hire contract workers
to fill orders but during slow periods, it might be contractually bound to pay
idle workers. A level production answers this problem by maintaining the
capacity of the production including labor.
Constant production also maintains constant cash payments schedules and
relies on the forecasted sales for the cash receipts schedules and accounts
receivables.
VII.

RECOMMENDATION

Using the production leveling Seasonal Products Corporation produce


intermediate goods at a constant rate so that further processing may also be
carried out at a constant and predictable rate. Level production is beneficial
in times where there are spikes in demand by leveling the output where extra
goods are kept as inventory and shall be disposed during peak seasons. This
way, labor costs are reduced. Level production also eliminates the pressure
for the company to overbook the production facility, transport facility and
maintain supply and demand of raw materials thus maintaining good
relationships with customers and suppliers.
VIII.

REFERENCES

http://en.wikipedia.org/wiki/Production_leveling