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Chapter 22: 13SE (page 1231)

Preparing an operating budget—sales budget

Trailers sells its rock-climbing shoes worldwide. Trailers expects to sell 6,500 pairs of shoes for \(185 each in January and 4,000 pairs of shoes for \)220 each in February. All sales are cash only. Prepare the sales budget for January and February.

Short Answer

Expert verified

Total budgeted sales for January and February are $1,202,500 and $880,000 respectively.

Step by step solution

01

Meaning of sales budget

A budget that estimates the amount of sales revenue is known as a sales budget.

02

Preparation of sales budget

Particulars

January

February

Budgeted shoes to be sold

6,500

4,000

Sales price per unit

X $185

X $220

Total sales

$1,202,500

$880,000

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Most popular questions from this chapter

Preparing a financial budget—cash budget

You recently began a job as an accounting intern at Reilly Golf Park. Your first task was to help prepare the cash budget for April and May. Unfortunately, the computer with the budget file crashed, and you did not have a backup or even a paper copy. You ran a program to salvage bits of data from the budget file. After entering the following data in the budget, you may have just enough information to reconstruct the budget.

Reilly Golf Park eliminates any cash deficiency by borrowing the exact amount needed from First Street Bank, where the current interest rate is 6% per year. Reilly Golf Park first pays interest on its outstanding debt at the end of each month. The company then repays all borrowed amounts at the end of the month with any excess cash above the minimum required but after paying monthly interest expenses. Reilly does not have any outstanding debt on April 1.

Complete the cash budget. Round interest expense to the nearest whole dollar.

What is the formula used to determine the amount of merchandise inventory to be purchased?

Preparing a financial budget—cash budget

Booth has \(12,500 in cash on hand on January 1 and has collected the following budget data:

January February

Sales \) 529,000 \( 568,000

Cash receipts from customers 443,000 502,200

Cash payments for direct materials purchases 180,624 160,284

Direct labor costs 135,010 113,348

Manufacturing overhead costs (includes

depreciation of \)900 per month) 55,058 53,922

Assume direct labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of \(40,000 per month plus commissions that are 1% of sales, all paid in the month of sale. The company requires a minimum cash balance of \)20,000. Prepare a cash budget for January and February. Round to the nearest dollar. Will Booth need to borrow cash by the end of February?

Using sensitivity analysis Rucker Company prepared the following budgeted income statement for 2019:

Requirements

1. Prepare a budgeted income statement with columns for 700 units, 1,300 units, and 1,700 units sold.

2. How might managers use this type of budgeted income statement?

3. How might spreadsheet software such as Excel assist in this type of analysis?

Preparing a financial budget—cash budget, sensitivity analysis

Leichter Auto Parts, a family-owned auto parts store, began January with \(10,500 cash. Management forecasts that collections from credit customers will be \)11,000 in January and \(15,200 in February. The store is scheduled to receive \)8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases (\(15,600 in January and \)14,800 in February) and selling and administrative expenses (\(2,900 each month).

Leichter Auto Part'sbank requires a \)10,000 minimum balance in the store’s checking account. At the end of any month when the account balance falls below \(10,000, the bank automatically extends credit to the store in multiples of \)1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of \(2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements

1. Prepare Leichter Auto Part'scash budget for January and February.

2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total \)14,200 instead of $15,200?
See all solutions

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