Question

You have been engaged as a consultant to design a master budget model and then to assist Helping Hand Corp. in making some management decisions based on that master budget. Helping Hand is a small, rapidly growing wholesaler of consumer electronic products. The company's main product lines are small kitchen appliances and power tools. The marketing manager has recently completed a sales forecast. She believes the company's sales will increase by 2 percent each month over the previous month's sales from December 2019 through March 2020. Then sales are expected to remain constant for several months. Helping Hand's projected balance sheet as of December 31, 2019 is as follows: Cash 140,000 Accounts receivable 202,851 Marketable securities 55,000 Inventory 35,894 Buildings and equipment (net of accumulated depreciation) 610,000 Total assets $ 1,043,745 $ 124,488 7,038 5,000 Accounts payable Sales commissions payable Bond interest payable Property taxes payable Bonds payable (3%; due in 2023) Common stock Retained earnings Total liabilities and stockholders' equity 500,000 250,000 157,219 1,043,745 $ The following information has been accumulated to assist with preparing the master budget for the first quarter of 2020: 1) Projected sales for November 2019 are $230,000. Credit sales are typically 85% of total sales. Helping Hand's credit experience indicates that 12% of credit sales are collected during the month of sale, 74% in the month following the sale, and 14% in the second month following the sale. Experience shows the remaining credit sales are uncollectible. 2) Helping Hand's cost of goods sold generally runs at 60% of sales. Inventory is purchased on account and 12% of each month's purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the company attempts to have inventory on hand at the end of each month equal to 25% of the next month's projected cost of goods sold. 3) The controller has estimated that Helping Hand's other monthly expenses will be as follows: Sales salaries 30,000 Advertising and promotion 6,000 Administrative salaries 11,000 Depreciation 8,000 Interest on bonds 1,250 Property taxes 4,000

Answer 1

Sales Budget
			November$	December$		January$	February$	March$	Q1$	April
Company - will increase 2% Month sales
Revenue			2,30,000	2,34,600		2,39,292	2,44,078	2,48,959	7,32,329	2,53,939
Cash sales	15%		34,500	35,190		35,894	36,612	37,344	1,09,849
Credit sales	85%		1,95,500	1,99,410		2,03,398	2,07,466	2,11,615	6,22,480
Cash Receipt Budget
Cash sales			34,500	35,190		35,894	36,612	37,344	1,09,849
Credit Sales - pattern
12% collected in same month			23,460	23,929		24,408	24,896	25,394	74,698
74% collected following Month				1,44,670		1,47,563	1,50,515	1,53,525	4,51,603
14% collected second month following sale						27,370	27,917	28,476	83,763
Total receipt			57,960	2,03,789		2,35,235	2,39,940	2,44,738	7,19,913
Purchase Budget
Sales ( as above)			2,30,000	2,34,600		2,39,292	2,44,078	2,48,959	7,32,329	2,53,939
Cost of Goods sold =60% of sales			1,38,000	1,40,760		1,43,575	1,46,447	1,49,376	4,39,398	1,52,363
Add= Closing Inventory
25% if next month projected COGS			35,190	35,894		36,612	37,344	38,091	38,091
Total Purchase unit			1,73,190	1,76,654		1,80,187	1,83,791	1,87,466	4,77,488
Less - Opening Inventory				-35,190		-35,894	-36,612	-37,344	-35,190
Total Purchase Budget				1,41,464		1,44,293	1,47,179	1,50,123	4,42,298
Cash disposal - Purchase Budget
Total Purchase Budget						1,44,293	1,47,179	1,50,123	4,42,298
12% of each month Purchae paid during the month						17,315	17,661	18,015	53,076
Reminder (100-12%)=88% based on earlier month						1,24,488	1,26,978	1,29,517	1,32,108
Total cash payment - purchase=A						1,41,803	1,44,639	1,47,532	1,85,184
Other cost as per Question
Salaries						30,000	30,000	30,000	90,000
Advertisement						6,000	6,000	6,000	18,000
Admin Salary						11,000	11,000	11,000	33,000
Interest on Bond ( 6 Month due on feb)=6*$1250							7,500		7,500
Property tax ( Quarterly pais)=$4000*3								12,000	12,000
Sales Commission=3%-preceding Month						7,038	7,179	7,322	7,469
Total of Other cost=B						54,038	61,679	66,322	1,67,969
Total cash payment( A+B)						1,95,841	2,06,318	2,13,855	3,53,152

			Amnt($)
Opening Cash balance			1,40,000
Less-Minimum Cash Balance			20,000
Cash available - Further Investment			1,20,000
Projection from sales of Marketable
Securities			55,000
cash available			1,75,000
Less - Further Capex Investment			2,00,000
Shortfall - Borrowing from Market			-25,000

Finally Summary of cash Budget						January$	February$	March$	Q1$
Cash Receipt						2,35,235	2,39,940	2,44,738	7,19,913
Cash Payment						-1,95,841	-2,06,318	-2,13,855	-6,16,014
Net Cash Balance						39,394	33,622	30,884	1,03,899
Add
Sale of Marketable security						55,000			55,000
Additional fund required as above						25,000			25,000
Less - Capex Investment						-2,00,000			-2,00,000
Less - Repayment of Loan								-25,000	-25,000
Less - Interest on Loan@ 6%*$25000*3/12								-375	-375
Less - Payment of dividend								-1,00,000	-1,00,000
Cash balance position -Qtr end									-1,41,476
Opening Cash balance									1,40,000
Closing Balance with OD									-1,476