Master Budget Total Cash Collections November 13000

Master Budget Total Cash Collections November 13000 Total Cash

Prepare a comprehensive master budget for the fourth quarter, including a cash budget, budgeted income statement, and balance sheet for Lubin Coffee Company, based on projected sales, purchases, expenses, and financing activities provided. Additionally, analyze two strategic options for improving net income and cash flow for the upcoming quarter.

Paper For Above instruction

The Lubin Coffee Company, operating within an environment of seasonal fluctuations and operational expenses, requires an integrated financial plan to guide its activities and decision-making during the upcoming quarter. Developing a master budget involves coordinating sales forecasts, inventory management, purchasing, operating expenses, and financing considerations to establish a company's financial trajectory, identify cash needs, and enhance profitability. This paper presents a detailed approach to creating the master budget, cash budget, income statement, and balance sheet for the final quarter of the year, along with strategic recommendations to improve financial performance.

Master Budget for the Fourth Quarter

The foundation of the master budget begins with sales projections. Based on prior actuals and predicted seasonal upticks, the projected units sold are 400 in October, 700 in November, and 600 in December. With a selling price of $25 per package, total sales revenue amounts to $10,000 in October, $17,500 in November, and $15,000 in December.

Sales collection policies stipulate that 40% of sales are received in the month of sale, and 60% in the following month. Applying this policy, collections for each month are computed by summing current month sales and the previous month's collections. For example, November collections comprise 40% of November sales ($7,000) plus 60% of October sales ($6,000), totaling $13,000, consistent with the data provided.

Inventory management is driven by the rule that ending inventory should equal 80% of the subsequent month’s sales in units. To cater to this policy, beginning inventory for October is estimated at 320 units, with purchases calculated accordingly to meet projected sales and ending inventory requirements. Since coffee beans are purchased in 25-pound sacs at $100 each, and each package contains 5 pounds, the number of sacs for purchase in each month can be accurately determined.

The purchasing schedule accounts for 50% payments made in the purchase month and 50% in the following month. For example, October purchases are financed by 50% of prior period payments plus new purchases, and so forth, including the purchase of additional sacs as needed for inventory buildup. The amounts for each month’s purchases in sacs and dollars are derived from calculations based on sales and inventory policies.

Operating expenses include wages, utilities, depreciation, and equipment purchases. Wages and utilities are paid monthly, totaling $2,000 and $300, respectively. Equipment purchased on October 1 for $12,000 incurs depreciation over 24 months. Monthly depreciation expenses are allocated accordingly, with $500 for the old equipment and $2,000 for building depreciation, totaling $2,500 monthly, excluding the new equipment's depreciation starting from October. Also, prepaid insurance, purchased at the start of the year at $15,000, covers the entire period, with expense recognition spread evenly across 12 months.

The cash budget incorporates cash inflows from sales, cash disbursements for purchases and operating expenses, and financing activities to maintain a minimum cash balance of $4,000. Borrowings are executed in $1,000 increments, with 1% monthly interest applied on amounts borrowed, and repayments occur as needed to restore minimum balances. The cash position at the start of October is $4,400, and this figure is adjusted as per calculated inflows and outflows.

The budgeted income statement summarizes the projected revenues, costs, and expenses to determine net income for the quarter. It accounts for revenues from sales, cost of goods sold (based on inventory purchases and sales), operating expenses, depreciation, and interest costs due to borrowing. The final net income provides insight into profitability given the projected operational activities.

The budgeted balance sheet consolidates assets, liabilities, and stockholders’ equity based on the projected end-of-quarter figures. It reflects the estimated cash balances, accounts receivable, inventories, property, and liabilities after transactions. This helps assess the company's financial position and liquidity at the period's end.

Two recommendations for strategic improvement include: (1) Enhancing sales volume through targeted marketing campaigns and promotional activities, thereby increasing revenue and cash inflow; (2) Optimizing inventory management by negotiating better procurement terms or implementing just-in-time inventory to reduce holding costs and increase cash flow. Both strategies can bolster net income and liquidity.

In conclusion, the comprehensive budgeting process for Lubin Coffee Company involves detailed planning of revenues, expenses, financing, and asset management. By systematically preparing these budgets, management can make informed decisions, identify potential cash shortages or surpluses, and implement strategies to improve overall financial health.

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