ACCT 505 Course Project 1- LBJ Company
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ACCT 505 Course Project 1- LBJ Company
COURSE PROJECT 1 INSTRUCTIONS
You have just been contracted as a budget consultant by LBJ
Company, a distributor of bracelets to various retail outlets across the
country. The company has done very little in the way of budgeting and at
certain times of the year has experienced a shortage of cash.
You have decided to prepare a cash budget for the upcoming
fourth quarter in order to show management the benefits that can be gained from
proper cash planning.You have worked with accounting and other areas to gather
the information assembled below.
The company sells many styles of bracelets, but all are sold for
the same $10 price. Actual sales of bracelets for the last three months and
budgeted sales for the next six months follow:
|
July (actual)
|
20,000
|
|
August (actual)
|
26,000
|
|
September (actual)
|
40,000
|
|
October (budget)
|
70,000
|
|
November (budget)
|
110,000
|
|
December (budget)
|
60,000
|
|
January (budget)
|
30,000
|
|
February (budget)
|
28,000
|
|
March (budget)
|
25,000
|
The concentration of sales in the fourth quarteris due to the
Christmas holiday. Sufficient inventory should be on hand at the end of each
month to supply 40% of the bracelets sold in the following month.
Suppliers are paid $4 for each bracelet. Fifty-percent of a
month’s purchases is paid for in the month of purchase; the other 50% is paid
for in the following month. All sales are on credit with no discounts. The
company has found, however, that only 20% of a month’s sales are collected in
the month of sale. An additional 70% is collected in the following month, and
the remaining 10% is collected in the second month following sale. Bad debts
have been negligible.
Monthly operating expenses for the company are given below:
Variable expenses:
Sales commissions
4% of sales
Fixed expenses:
Advertising
$220,000
Rent
$20,000
Salaries
$110,000
Utilities
$10,000
Insurance
$5,000
Depreciation
$18,000
Insurance is paid on an annual basis, in January of each year.
The company plans to purchase $22,000 in new equipment during
October and $50,000 in new equipment during November; both purchases will be
for cash. The company declares dividends of $20,000 each quarter, payable in
the first month of the following quarter.
Other relevant data is given below:
Cash balance as of September 30
$74,000
Inventory balance as of September
30
$112,000
Merchandise purchases for
September
$200,000
The company maintains a minimum cash balance of at least $50,000
at the end of each month. All borrowing is done at the beginning of a month;
any repayments are made at the end of a month.
The company has an agreement with a bank that allows the company
to borrow the exact amount needed 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. At the end of the quarter, the company will pay the
bank all of the accrued interest on the loan and as much of the loan as
possible while still retaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period ending December
31. Include the following detailed budgets:
1.
1. a. A sales budget, by month and in total.
2. b. A schedule of expected cash collections
from sales, by month and in total.
3. c. A merchandise purchases budget in units
and in dollars. Show the budget by month and in total.
4. d. A schedule of expected cash
disbursements for merchandise purchases, by month and in total.
5. A cash budget. Show the budget by month and in
total. Determine any borrowing that would be needed to maintain the minimum
cash balance of $50,000.
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