29 Jun Question Developing a Master Budget
Question
Developing a Master Budget
for a Merchandising Organization
Peyton Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2010.
.0pt;mso-line-height-alt:10.9pt; background:#FAFAFA”>Cash dividends of $17,000 are declared during the third month of each quarter and are paid during the first month of the following quarter.
Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months.
Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month’s sales. Purchases during any given month are paid in full during the following month.
All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter.
Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $2,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.
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