Cost of Production

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:

1. As of December 31, (the end of the prior quarter), the company’s general ledger showed the following account balances:
   Cash $48,000 (debit)
   Accounts receivable $224,000 (debit)
   Inventory $60,000 (debit)
   Buildings and equipment, net $370,000 (debit)
   Accounts payable $93,000 (credit)
   Capital stock $500,000 (credit)
   Retained earnings $109,000 (credit)
2. Actual sales for December and budgeted sales for the next four months are as follows: December $280,000, January $400,000, February $600,000, March $300,000 and April $200,000.
3. 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.
4. The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
5. 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 $42,000 per quarter.
6. Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
7. One-half of the month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
8. During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500.
9. During January, the company will declare and pay $45,000 in cash dividends.
10. 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 in increments of $1,000 at the beginning of each month. 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, repay the loan plus accumulated interest at the end of the quarter.

Required:

Schedule of Expected Cash Collections
Â	January	February	March	Quarter
Cash sales	$80,000	Â	Â	Â
Credit sales	$224,000	Â	Â	Â
Total Collections	$304,000	Â	Â	Â

Using the data above, complete the following statements and schedules for the first quarter. Submit your responses in an Excel spreadsheet:

1. Schedule of expected cash collections
2. Merchandise purchases budget

Merchandise Purchases Budget
Â	January	February	March	Quarter
Budgeted Cost of Goods Sold	$240,000*	$360,000	Â	Â
Add desired ending inventory	$90,000**	Â	Â	Â
Total needs	$330,000	Â	Â	Â
Less beginning inventory	$60,000	Â	Â	Â
Required purchases	$270,000	Â	Â	Â
*$400,000 sales x 60% cost ratio = $240,000 ** $360,000 x 25% = $90,000	Â	Â	Â	Â

1. Schedule of expected cash disbursements-merchandise purchases

Schedule of Expected Cash Disbursements-Merchandise Purchases
Â	January	February	March	Quarter
December purchases	$93,000	Â	Â	$93,000
January purchases	$135,000	$135,000	Â	$270,000
February purchases	Â	Â	Â	Â
March purchases	Â	Â	Â	Â
Total disbursements	$228,000	Â	Â	Â

1. Schedule of expected cash disbursements-selling and administrative expenses

Schedule of Expected Cash Disbursements-Selling and Administrative Expenses
Â	January	February	March	Quarter
Salaries and wages	$27,000	Â	Â	Â
Advertising	$70,000	Â	Â	Â
Shipping	$20,000	Â	Â	Â
Other expenses	$12,000	Â	Â	Â
Total disbursements	$129,000	Â	Â	Â

1. Cash budget:

Cash Budget
Â	January	February	March	Quarter
Cash balance, beginning	$48,000	Â	Â	Â
Add cash collections	$304,000	Â	Â	Â
Total cash available	$352,000	Â	Â	Â
Less cash disbursements	Â	Â	Â	Â
For inventory	$228,000	Â	Â	Â
For selling and admin expenses	$129,000	Â	Â	Â
For purchase of equipment	------	Â	Â	Â
For cash dividends	$45,000	Â	Â	Â
Total cash disbursements	$402,000	Â	Â	Â
Excess (deficiency) of cash	($50,000)	Â	Â	Â
Financing needed	Â	Â	Â	Â
Cash balance, ending	Â	Â	Â	Â

Provide your answers in a clearly organized Excel spreadsheet. Provide your answers in a clearly organized Excel spreadsheet.