Homework 7 Instructions Help The Following Information Apply

Homework 7 Instructions Helpthe Following Information Applies To Th

The assignment requires preparing comprehensive budgets for Dimsdale Sports Co. for January, February, and March 2014, including sales, merchandise purchases, selling expenses, general and administrative expenses, capital expenditures, cash flows, and a budgeted income statement and balance sheet. Additionally, you need to prepare detailed budgets for Aztec Company for June and July, including sales, inventory, purchases, payments, and cash budgets, considering credit collection and payment policies, minimum cash balances, and loan activities.

Paper For Above instruction

The detailed budgeting process is fundamental in financial planning and control for any company. This paper explores the comprehensive budgeting procedures for Dimsdale Sports Co. and Aztec Company, emphasizing their importance in managing cash flows, controlling expenses, and supporting strategic decision-making. It illustrates the step-by-step construction of various budgets, integrating sales forecasts, inventory management, expenditure forecasts, cash receipts, disbursements, and financial statements, thereby providing a clear understanding of the detailed planning required for effective financial management.

Budgets for Dimsdale Sports Co.

In developing a master budget for Dimsdale Sports Co., the process begins with the sales budget, which estimates unit sales for January ($7,250), February ($9,250), and March ($10,500). The budgeted unit price is $53, with total sales revenue calculated accordingly. This forecast serves as the foundation for subsequent budgets, including merchandise purchases, which are based on desired ending inventory levels and beginning inventory, ensuring sufficient stock without overaccumulation. The desired ending inventory is set at 20% of the next month’s expected sales, leading to calculated purchase units and costs. These budgets inform the cash collections from sales, considering the company's credit and cash sales proportions and collection and payment timings. The company's receivables are forecasted based on past collection patterns, and payables are projected based on purchase timings and payment policies.

Selling expenses, comprising commissions (20% of sales), are budgeted monthly, along with salaries, maintenance, and other operational costs. Capital expenditures include equipment purchases planned for each month, depreciated over eight years using the straight-line method, impacting the depreciation expense budget. The land acquisition at month-end is also planned, with a significant cash outflow. The cash budget then consolidates all cash receipts and disbursements, factoring in minimum cash balance requirements and potential short-term loans, including interest calculations at a 12% annual rate. The budgeted income statement aggregates revenues and expenses to forecast net income, and the balance sheet projects assets, liabilities, and stockholders' equity as of March 31, 2014.

Budgets for Aztec Company

Similarly, Aztec Company’s budgeting process begins with sales estimates for April through August, with specific collection patterns cashing in on credit sales over subsequent months. The collection percentages are 30% in the sale month, 40% in the following month, 26% in the second subsequent month, and 4% as uncollectible. Inventory policies require holding 25% of the next month’s sales plus a safety stock, guiding ending inventory calculations. The purchases budget aligns with inventory needs, considering these policies and purchase payment timings, with 60% paid in the current month and 40% in the next. The cash payments on purchases are projected accordingly.

The cash budget for June and July accounts for beginning cash balances, projected cash inflows from collections, and outflows from purchases, expenses, and loan payments, factoring in the minimum cash balance requirement of $110,000. Loan activities, including borrowing and repayments with interest, are integrated into the cash plan, with calculation of the ending loan balance each month. These detailed budgets enable effective financial decision-making, ensuring liquidity management, operational planning, and strategic investments are aligned with projected cash flows and financial position.

Conclusion

Effective budgeting involves complex, interconnected planning processes that require careful consideration of sales, expenditures, investments, and financing activities. The detailed budgets generated for Dimsdale Sports Co. and Aztec Company exemplify the meticulous financial planning necessary for sustaining operational efficiency, supporting strategic initiatives, and ensuring liquidity. Proper implementation of these budgets helps prevent cash shortages, optimize resource utilization, and facilitate informed decision-making by management. The integration of sales forecasts, expense planning, asset acquisitions, and financing schedules underscores the critical role budgeting plays in corporate financial management.

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