You are on page 1of 1

Eastern Kite Company, a small wholesaler that sells custom kites on the Web, desires a master budget for

the three months

beginning January 1, 2018. It desires a minimum cash balance of $26,000 each month. Sales are forecasted at an average
selling price of $ 8 per kite. All sales are on credit terms n/30 but experience shows collections as follows:

Current month 70%

month following sale 20%
2nd month following sale 10%
bad debts negligible

In January, the company is beginning just-in-time deliveries from its suppliers, which means that purchases of kites for resale in a
given month will equal sales for that month. Commencing January 1, purchases will cease until inventory decreases to $ 24,000.00
after which time purchases will equal expected sales. Purchases are paid for in the following month.

Monthly operating expenses are as follows:

Wages and salaries $50,000 plus 10% of sales

Insurance expiring 500
Depreciation 1000
Miscellaneous 8000 plus 2% of sales
Rent 1000 plus 10% of quarterly sales over $40000
Cost per kite from supplier $ 4 each

Cash dividends of $6,000 are to be paid quarterly beginning January 15, and are declared on the 15th day of the previous month.
Rent of $1,000 per month is paid at the beginning of each month, and the additional 10% of sales is settled quarterly on the 10th
day of the month following the end of the quarter. The next rent settlement date if January 10th.

The Company plans to buy some new fixtures (fixed assets) for $12,000 cash in March.

Money can be borrowed as required but repayments must be a minimum of $1000 or what is owed, whichever is less. Management wants to minimize borrowing and repay rapidly.
Simple interest of 12% per annum is computed monthly but paid when principal is repaid in full. Assume any borrowing occurs
at the beginning of the month and repayments are made at the end of the month.

Compute all amounts to the nearest dollar, no cents, except as noted.

Balance sheet at December 31, 2017 is forecasted as follows:

Cash 20000 Accounts payable 142200

Accounts receivable 50000 (all for merchandise purch)
Inventory 156200 Dividends payable 6000
Unexpired insurance 6000 Rent payable 31200
Fixed assets (net of A/D) 50000 Total owners' equity 102800
Total 282200 Total 282200

Remember: ending balances of one month become beginning balances for the next month.

Recent and forecasted sales ($):

October 152000 January 248000

November 100000 February 280000
December 100000 March 152000
April 180000