option 2 cost of production ct5

Vonn Company, a furniture store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the quarter:

• As of the end of the prior quarter, September 30, the company’s general ledger showed the following account balances:
  • Cash $62,000 (debit)
  • Accounts receivable $480,000 (debit)
  • Inventory $78,000 (debit)
  • Buildings and equipment, net $570,000 (debit)
  • Accounts payable $193,000 (credit)
  • Capital stock $300,000 (credit)
  • Retained earnings $619,000 (credit)
• Actual sales for September and budgeted sales for the next four months are as follows: September $280,000, October $400,000, November $600,000, December $300,000 and January $200,000.
• 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.
• The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
• 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.
• Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
• 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.
• During November, the company will purchase a new copy machine for $1,700 cash. During December, other equipment will be purchased for cash at a cost of $84,500.
• During October, the company will declare and pay $45,000 in cash dividends.
• 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 tasks:

Using the data above, populate the following statements and schedules for the October-December quarter. Submit your responses in an Excel spreadsheet neatly organized. If desired, you may modify the schedule formats as necessary to show your work as long as all of the content is included.

1. Schedule of expected cash collections

Schedule of Expected Cash Collections
	October	November	December	Quarter
Cash sales
Credit sales
Total Collections

2. Merchandise purchases budget

Merchandise Purchases Budget
	October	November	December	Quarter
Budgeted Cost of Goods Sold
Add desired ending inventory
Total needs
Less beginning inventory
Required purchases

3. Schedule of expected cash disbursements for merchandise purchases

Schedule of Expected Cash Disbursements-Merchandise Purchases
	October	November	December	Quarter
September purchases
October purchases
November purchases
December purchases
Total disbursements

4. Schedule of expected cash disbursements for selling and administrative expenses

Schedule of Expected Cash Disbursements-Selling and Administrative Expenses
	October	November	December	Quarter
Salaries and wages
Advertising
Shipping
Other expenses
Total disbursements

5. Cash budget:

Cash Budget
	October	November	December	Quarter
Cash balance, beginning
Add cash collections
Total cash available
Less cash disbursements
For inventory
For selling & admin exp.
For purchase of equipment
For cash dividends
Total cash disbursements
Excess (deficiency) of cash
Financing needed
Borrowings
Repayments
Interest
Net borrowings
Cash balance, ending

Submit your responses in an Excel spreadsheet, neatly organized. Reference Lynda.com in the
CSU-Global Library (Links to an external site.) for Microsoft Excel tutorials or use the Excel Tutorials link found in the classroom if assistance is needed.

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