Question

Near the end of 2019, the management of Dimsdale Sports Co., a merchandising company, prepared the following estimated balance sheet for December 31, 2019.

DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2019
Assets
Cash	$	36,500
Accounts receivable		520,000
Inventory		105,000
Total current assets				$	661,500
Equipment		612,000
Less: Accumulated depreciation		76,500
Equipment, net					535,500
Total assets				$	1,197,000
Liabilities and Equity
Accounts payable	$	375,000
Bank loan payable		12,000
Taxes payable (due 3/15/2020)		89,000
Total liabilities				$	476,000
Common stock		474,500
Retained earnings		246,500
Total stockholders’ equity					721,000
Total liabilities and equity				$	1,197,000

To prepare a master budget for January, February, and March of 2020, management gathers the following information.

1. The company’s single product is purchased for $20 per unit and resold for $57 per unit. The expected inventory level of 5,250 units on December 31, 2019, is more than management’s desired level, which is 20% of the next month’s expected sales (in units). Expected sales are January, 7,500 units; February, 9,500 units; March, 10,750 units; and April, 10,000 units.
2. Cash sales and credit sales represent 20% and 80%, respectively, of total sales. Of the credit sales, 61% is collected in the first month after the month of sale and 39% in the second month after the month of sale. For the December 31, 2019, accounts receivable balance, $120,000 is collected in January 2020 and the remaining $400,000 is collected in February 2020.
3. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2019, accounts payable balance, $65,000 is paid in January 2020 and the remaining $310,000 is paid in February 2020.
4. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $90,000 per year.

Required:
Prepare a master budget for each of the first three months of 2020; include the following component budgets.

1. Monthly sales budgets.
2. Monthly merchandise purchases budgets.
3. Monthly selling expense budgets.
4. Monthly general and administrative expense budgets

Required 1

Monthly sales budgets.

	DIMSDALE SPORTS CO. Sales Budget For January, February, and March 2020 Budgeted Unit Sales Budgeted Unit Price Budgeted Total Dollars January February March Totals for the quarter

Required 2

Monthly merchandise purchases budgets.

	DIMSDALE SPORTS CO. Merchandise Purchases Budget January, February, and March 2020 January February March Next month's budgeted sales (units) 9,500 10,750 10,000 Ratio of inventory to future sales 20% 20% 20% Required units of available merchandise Units to be purchased

Required 3

Monthly selling expense budgets.

	DIMSDALE SPORTS COMPANY Selling Expense Budget January, February, and March 2020 January February March Budgeted sales Sales commissions

Answer 1

Solution 1:

Sales Budget - Dimsdale Sports Co
Particulars	January	February	March	Total
Sales units	7500	9500	10750	27750
Selling price per unit	$57.00	$57.00	$57.00	$57.00
Projected Sales Revenue	$427,500.00	$541,500.00	$612,750.00	$1,581,750.00

Solution 2:

Merchandise Purchase Budget - Dimsdale Sports Co
Particulars	January	February	March	Total
Sales units	7500	9500	10750	27750
Add: Desired ending inventory (20% of next month sales)	1900	2150	2000	2000
Less: Opening Inventory	5250	1900	2150	5250
Budgeted purchase units	4150	9750	10600	24500
Purchase price per unit	$20.00	$20.00	$20.00	$20.00
Budgeted merchandise purchases	$83,000.00	$195,000.00	$212,000.00	$490,000.00

Solution 3:

Selling Expenses Budget - Dimsdale Sports Co
Particulars	January	February	March	Total
Budgeted sales	$427,500.00	$541,500.00	$612,750.00	$1,581,750.00
Sales Commissions	$85,500.00	$108,300.00	$122,550.00	$316,350.00
Sales salaries	$7,500.00	$7,500.00	$7,500.00	$22,500.00
Budgeted selling Expenses	$93,000.00	$115,800.00	$130,050.00	$338,850.00