Preparing an operating budget—sales and production budgets

Gorman Company manufactures drinking glasses. One unit is a package of eight glasses, which sells for $35. Gorman projects sales for April will be 5,500 packages, with sales increasing by 450 packages per month for May, June, and July. On April1, Gorman has 125 packages on hand but desires to maintain an ending inventory of 10% of the next month’s sales. Prepare a sales budget and a production budget for Gorman for April, May, and June. May pkg. produced 5,995.

E22-27 Preparing a financial budget—schedule of cash receipts, sensitivity analysis. Feb. total cash receipts $11,960.
Armand Company projects the following sales for the first three months of the year: $10,600 in January; $12,300 in February; and $12,900 in March. The company expects 60% of the sales to be cash and the remainder on account. Sales on account are collected 50% in the month of the sale and 50% in the following month. The Accounts Receivable account has a zero balance on January 1. Round to the nearest dollar.
1. Prepare a schedule of cash receipts for Armand for January, February, and March. What is the balance in Accounts Receivable on March 31?
2. Prepare a revised schedule of cash receipts if receipts from sales on account are 60% in the month of the sale, 30% in the month following the sale, and 10% in the second month following the sale. What is the balance in Accounts Receivable on March 31?
P22-57 Preparing a financial budget.
Assume Daniels Consulting began January with $12,000 cash. Management forecasts that cash receipts from credit customers will be $52,000 in January and $55,000 in February. Projected cash payments include equipment purchases ($16,000 in January and $40,400 in February) and selling and administrative expenses ($6,000 each month). Daniels’s bank requires a $23,000 minimum balance in the firm’s checking account. At the end of any month when the account balance falls below $23,000, the bank automatically extends credit to the firm in multiples of $5,000. Daniels borrows as little as possible and pays back loans each month in $1,000 increments, plus 12% interest on the entire unpaid principal. The first payment occurs one month after the loan.
1. Prepare Daniels Consulting’s cash budget for January and February 2018.
2. How much cash will Daniels borrow in February if cash receipts from customers that month total $30,000 instead of $55,000?

E22A-33 Preparing an operating budget—inventory, purchases, and cost of goods sold budget.
Stewart, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2016, follows:
Quarter Ended.
March 31 June 30 September 30 Nine Month Total
Cash Sales 20% $20,000 $30,000 $25,000 $75,000
Credit Sales 80& $80,000 $120,000 $100,000 $300,000
Total Sales. $100,000 $150,000 $125,000 $375,000

In the past, cost of goods sold has been 40% of total sales. The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below $10,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of $200,000 during the fourth quarter. The January 1 inventory was $36,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.
E22A-34 Preparing an operating budget—selling and administrative expense budget.
Consider the sales budget presented in Exercise E22A-33. Stewart’s selling and administrative expenses include the following:
Rent $1,100
Salaries $2,000 per month.
Commissions 4% of sales
Depreciation $1,800 per month
Miscellaneous expenses 3% of sales

Prepare a selling and administrative expense budget for each of the three quarters of 2016 and totals for the nine-month period.

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