You are on page 1of 2

Victoria Kite Company, a small Melbourne firm that sells kites on the Web wants a master budget for

the next three months, beginning January 1, !!"# $t desires an ending minimum cash balance of %",!!! each month# &ales are forecasted at an a'erage wholesale selling price of %( per kite# $n January, Victoria Kite is beginning )ust in time *J$+, deli'ers from suppliers, which means that purchases e-ual expected sales# .n January1, purchases will cease until in'entory reaches %/,!!!, after which time purchases will e-ual sales# Merchandise costs a'erage %0 per kite# 1urchases during any gi'en month are paid in full during the following month# 2ll sales are on credit, payable within 3! days, but experience has shown that /!4 of current sales are collected in the current month, 3!4 in the next month, and 1!4 in the month thereafter# 5ad debts are negligible# Monthly operating expenses are as follows6 Wages and salaries $nsurance expired 7epreciation Miscellaneous 8ent %1",!!! %1 " % "! % ,"!! % "!9month : 1!4 of -uarterly sales o'er %1!,!!!

Cash di'idends of %1,"!! are to be paid -uarterly, beginning January 1", and are declared on the 1"th of the pre'ious month# 2ll operating expenses are paid as incurred, except insurance, depreciation, and rent# 8ent of % "! is paid at the beginning of each month, and the additional 1!4 of sales is paid -uarterly on the1!th of the month following the end of the -uarter# +he next settlement is due January 1!# +he company plans to buy some new fixtures for %3,!!! cash in March# Money can be borrowed and repaid in multiples of %"!! at an interest rate of 1;4 per annum# Management wants to minimi<e borrowing and repay rapidly# $nterest is computed and paid when the principal is repaid# 2ssume that borrowing occurs at the beginning and the repayments at the end of the months in -uestion# Money is ne'er borrowed at the beginning and repaid at the end of the same month# Compute interest to the nearest dollar# 2ssests as of of 7ecember 31, !!0 Cash %",!!! 2ccounts recei'able %1 ,"!! $n'entory = %3;,!"! >nexpired insurance %1,"!! ?ixed assets, net %1 ,"!! @@@@@@@@@@@@ %A!,""! = Bo'ember 3! in'entory balance C %1/,!!! Diabilities as of 7ecember 31, !!0 2ccounts payable %3",""!

7i'idends payable 8ent payable

%1,"!! %A,(!! @@@@@@@@@ %00,("!

8ecent and forecasted sales6 .ctober %3(,!!! Bo'ember % ",!!! 7ecember % ",!!! January %/ ,!!! ?ebruary %A",!!! March %3(,!!! 2pril %0",!!! 1, 1repare sales budget, cash collections, purchases budget, cash disbursement for purchases, operating expenses and disbursements for expenses for the months January thru March !!"# , 1repare cash budget and balance sheet for the months January thru March !!"# Note: for tutors from 2nswers were gi'en6 +otal assets should be %AA,"/A *January thru March !!", &tockholderEs e-uity on the balance sheet6 5alance 7ecember 31, !!0 % ",A!! 2dd6 Bet income %1/,3/A @@@@@@@@@ %0 ,!/A Dess6 7i'idend declared %1,"!! @@@@@@@@@ 5alance March 31, !!" %0!,"/A