Act 202 Spring 2020 Graded Case 5 Master Budget For Baderan

Act202spring2020gradedcase5masterbudgetforbaderanbargiveninforma

ACT202:Spring2020:GradedCase#5:MasterBudget: forBaderAnbar:GivenInformation:TheBeautifulLampCompanymakesandsellswelldesignedendtablelamps.Managementisconfidentaboutitsforecastedsalesgrowthinlightofthepriceandhighqualitycraftsmanship.Belowistheinformationmanagementisusinginpreparingtheupcomingannualbudget.Sales:Salesinthefourthquarterprecedingthebudgetyearareexpectedtobe18,000unitsandsalesareexpectedtoincreaseby1,600unitsperquarterforthebudgetyear.Thesalespriceperlampisexpectedtobe$65.00inthefourthquarterprecedingthebudgetyearandisexpectedtoincreaseby$1.40perlampperquarterforthenextseveralquarters.Historyindicatesthat60%ofsalesarecashsalesandthebalances(40%)aresalesonaccountwhicharefullycollectedthefollowingquarter.TheAccountsReceivablebalanceattheendofthefourthquarterprecedingthebudgetyearisexpectedtobe$468,000.Inventory:Thecompanymaintainsafinishedgoodsinventoryequalto30%ofthefollowingquartersales.Thelampsareexpectedtocost$36.00eachinthe4thquarterprecedingthebudgetyearandcostsareexpectedtoriseby$1.00perlampperquarterbeginninginthefirstquarterofthebudgetyear.Fiftypercent(50%)oftheinventorypurchasesareexpectedtobepaidinthemonthpurchasedandthebalance(50%)isexpectedtobepaidinthefollowingquarter.AccountsPayablebalanceattheendofthefourthquarterprecedingthebudgetyearisexpectedtobe$332,640.OperatingExpenses:Thecompany'soperatingexpensesincludethefollowing.Rentfortheplantisexpectedtobe$240,000perquarter.Depreciationexpenseisexpectedtobe$8,000perquarter.Salariesandwagesareexpectedtobe$200,000inthefourthquarterprecedingthebudgetyearandareexpectedtoincreaseby2%perquarterforthebudgetyear.Miscellaneousexpensesinthefourthquarterprecedingthebudgetyearareexpectedtobe$28,000andareexpectedtoincreaseby5%perquarter.AllOperatingexpensesarepaidinthequarterinwhichtheyareincurred.Accountinginformation:CostofGoodsSold(foreachquarter)isdeterminedbytheestimatedaveragecostperunitpurchasedduringtheyeartimesthenumberofunitssoldduringeachquarter.ThebeginningCashbalanceforthebudgetedperiodisexpectedtobe$150,000.Preparethefivebudgets:Sales,Purchases,OperatingExpenses,IncomeStatement,andCash.

Paper For Above instruction

The preparation of a master budget is a critical process in strategic financial planning for a company, enabling management to forecast financial performance and coordinate operational activities effectively. This paper details the comprehensive approach to developing a master budget for The Beautiful Lamp Company, a manufacturer and seller of high-quality end table lamps. The process involves creating the sales, purchases, operating expenses, income statement, and cash budgets based on given sales data, cost estimates, and expense projections for the upcoming fiscal year.

Sales Budget

The sales budget begins with projecting sales units and revenue. For the period preceding the budget year, sales are expected to be 18,000 units in the fourth quarter, with a quarterly increase of 1,600 units. The expected selling price starts at $65.00 per lamp in the fourth quarter and is anticipated to rise by $1.40 each subsequent quarter. Calculations provide a detailed forecast of quarterly sales units, sales revenue, and the proportion of cash and credit sales, with 60% of sales paid in cash immediately and 40% on account with full collection in the following quarter. Accounts receivable at the end of the fourth quarter are projected at $468,000, consistent with the credit sales from the previous quarter.

Purchases Budget

The inventory policy maintains finished goods inventory at 30% of the next quarter’s sales units. The cost per unit starts at $36.00 in the fourth quarter and increases by $1.00 each quarter. Using projected sales and inventory levels, the purchases needed each quarter are calculated to ensure adequate stock levels, accounting for the beginning inventory, and factoring in the payable terms where 50% of purchases are paid in the purchase month and the rest in the following quarter. The accounts payable balance is expected to be $332,640 at quarter-end, aligning with purchase payment schedules.

Operating Expenses Budget

The operating expenses include rent, depreciation, wages, and miscellaneous expenses. Rent remains steady at $240,000 per quarter, while depreciation is fixed at $8,000 per quarter. Salaries and wages are projected at $200,000 in the fourth quarter, increasing by 2% per quarter. Miscellaneous expenses are $28,000 in the fourth quarter and increase by 5% per quarter. All expenses are paid in the same quarter incurred, requiring careful cash flow planning.

Income Statement Budget

The income statement is prepared by estimating the cost of goods sold (COGS), gross profit, operating expenses, and net income. COGS is based on the number of units sold and the projected cost per unit, which increases quarterly. The gross profit is derived by subtracting COGS from sales revenue. Operating expenses are subtracted from gross profit to determine operating income, with depreciation included as a non-cash expense. The income statement provides a forecast of profitability for each quarter, facilitating performance monitoring and financial analysis.

Cash Budget

The cash budget brings together all cash inflows and outflows. Beginning cash balance is $150,000. Cash inflows originate from cash sales and collections on credit sales from prior quarters. Outflows include payments for purchases, operating expenses, and other expenses. The cash budget ensures that the company maintains adequate cash reserves, planning for potential shortfalls and surpluses. The detailed projection helps management make informed decisions regarding borrowing or investing excess cash.

Conclusion

Developing a master budget for The Beautiful Lamp Company involves integrating sales forecasts, inventory policies, expense projections, and cash flow management. This comprehensive planning process assists management in aligning operational activities with financial targets, ultimately supporting sustainable growth and profitability. Accurate budgeting requires careful analysis of historical data and future assumptions, and continuous updates to reflect actual performance and changing conditions.

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