Hillyard Company 50 Points Office Supplies

Hillyard Company50 Pointshillyard Company An Office Supplies Specia

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter: As of December 31, (the end of the prior quarter), the company’s general ledger showed the following account balances: Cash $48,000 (debit) Accounts receivable $224,000 (debit) Inventory $60,000 (debit) Buildings and equipment, net $370,000 (debit) Accounts payable $93,000 (credit) Capital stock $500,000 (credit) Retained earnings $109,000 (credit) Actual sales for December and budgeted sales for the next four months are as follows: December $280,000, January $400,000, February $600,000, March $300,000 and April $200,000.

Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. The company’s gross margin is 40% of sales, meaning the cost of goods sold is 60% of sales. Monthly expenses are budgeted as salaries and wages, $27,000; advertising, $70,000; shipping, 5% of sales; and other expenses, 3% of sales. Depreciation, including on new assets acquired during the quarter, will be $42,000 per quarter.

Each month’s ending inventory should equal 25% of the following month’s cost of goods sold. Inventory purchases are paid half in the month of purchase and half in the following month. During February, the company will purchase a new copy machine for $1,700 cash. During March, equipment will be purchased for $84,500 cash. In January, the company will declare and pay $45,000 in cash dividends. Management aims to maintain a minimum cash balance of $30,000.

The company can borrow in increments of $1,000 at 1% monthly interest, with no interest compounding, and intends to repay loans plus interest at the end of the quarter.

Using the above facts, complete the following schedules and the cash budget:

Schedule of expected cash collections

January: Cash sales $80,000; credit sales $224,000; total collections $304,000.

February and March will be calculated based on the collections from prior month’s credit sales, factoring in the 80% credit sales collected in the following month.

Merchandise purchases budget

January: Cost of Goods Sold $240,000; ending inventory $90,000; total needs $330,000; beginning inventory $60,000; required purchases $270,000.

February and March will be determined similarly, based on sales and inventory needs.

Schedule of Expected Cash Disbursements for Merchandise Purchases

January: December purchase $93,000; January purchase $135,000; total disbursements $228,000. February and March will include additional purchase amounts and payments for inventory.

Schedule of Expected Cash Disbursements – Selling and Administrative Expenses

January: Salaries and wages $27,000; Advertising $70,000; Shipping $20,000; Other expenses $12,000; total $129,000. February and March expenses will be based on budgeted figures.

Cash Budget for the Quarter

Beginning cash balance $48,000. Total cash available is the sum of beginning balance and collections. Disbursements include inventory payments, selling and admin expenses, equipment purchases, and dividends. The budget must reflect the company's strategy to maintain a minimum cash balance of $30,000, factoring in any necessary financing and loan repayments.

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