E22-24 Preparing an operating budget
Dunbar Company manufactures drinking glasses. One unit is a package of 8 glasses,
which sells for $20. Dunbar projects sales for April will be 3,000 packages, with
sales increasing by 100 packages per month for May, June, and July. On April 1,
Dunbar has 250 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
Dunbar for April, May, and June.
E22A-32 Preparing an operating budget
Tremont, Inc. sells tire rims. Its sales budget for the nine months ended September
30, 2014, follows:
Quarter Ended Nine-Month
March 31 June 30 September 30
Cash sales, 20% $ 24,000 $ 34,000 $ 29,000 $ 87,000
Credit sales, 80% 96,000 136,000 116,000 348,000
Total sales $ 120,000 $ 170,000 $ 145,000 $ 435,000
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 $20,000 plus 10% of cost of goods sold for the following
quarter. The marketing director expects sales of $220,000 during the fourth quarter.
The January 1 inventory was $32,000. 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.
P22-56 Preparing a financial budget
This problem continues the Davis Consulting, Inc. situation from Problem P21-63 of
Chapter 21. Assume Davis Consulting began January with $29,000 cash. Management
forecasts that cash receipts from credit customers will be $49,000 in January and
$51,500 in February. Projected cash payments include equipment purchases ($17,000
in January and $40,000 in February) and selling and administrative expenses ($6,000
Davis’s bank requires a $20,000 minimum balance in the firm’s checking account.
At the end of any month when the account balance falls below $20,000,
the bank automatically extends credit to the firm in multiples of $5,000. Davis
borrows as little as possible and pays back loans each month in $1,000 increments,
plus 5% interest on the entire unpaid principal. The first payment occurs one
month after the loan.
1. Prepare Davis Consulting’s cash budget for January and February 2013.
2. How much cash will Davis borrow in February if cash receipts from customers
that month total $21,500 instead of $51,500?
Prepare your answers in an Excel workbook, using one worksheet per exercise or problem.
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