Project A Case 9-30 Student Name: Sales

Project A Case 9 30 PROJECT ACase 9 30 Student Name SALES BUDGET

Project A Case 9-30 PROJECT A—Case 9-30 Student Name: SALES BUDGET

Following the detailed case instructions, prepare comprehensive budgets covering sales, cash collections, merchandise purchases, cash disbursements, and other relevant financial statements for the period ending June 30. Your task is to develop these budgets based on given assumptions, forecast expected financial performance, and prepare financial statements including income statement and balance sheet, considering all relevant financial activities and timelines.

Paper For Above instruction

Budgeting plays a crucial role in financial planning and control for any business. For a company like Earring Unlimited, effective budgeting encompasses creating detailed projections of sales, cash flow, merchandise inventory, expenses, and overall financial position over a specified period. The period in question covers the months April through June, culminating in a comprehensive financial snapshot at the end of June. This paper elucidates the steps and considerations involved in developing an integrated budgeting process aligned with the provided case scenario.

Sales Budget

The cornerstone of any budgeting process is establishing realistic sales forecasts. For Earring Unlimited, the sales budget involves estimating the units expected to be sold each month and multiplying these by the selling price to determine total sales revenue. These projections rely on historical sales data, market trends, seasonal factors, and promotional plans. For instance, if the forecasted unit sales for April, May, and June are X, Y, and Z respectively, at a selling price of $M per unit, then total sales would be calculated as these units times the unit price. Accurate sales projections set the foundation for cash flow and inventory planning.

Schedule of Expected Cash Collections

Cash collections depend on the company's credit terms and customer payment patterns. Typically, a percentage of sales from previous months is collected in the current period. For Earring Unlimited, expected cash collections for April, May, and June involve applying collection rates to sales made in the previous months, including February and March sales, as well as current month sales. This schedule ensures that the company can anticipate cash inflows accurately, facilitating effective cash management and highlighting potential shortfalls.

Merchandise Purchase Budget

To meet sales demands, the merchandise purchase budget estimates the units of inventory needed each month, accounting for desired ending inventory levels and beginning inventory. The calculation involves adding the desired ending inventory to the cost of sales, subtracting beginning inventory to determine the required purchases. The cost per unit, assumed at $4, multiplies by the purchase quantity to determine total purchase costs. Proper inventory management prevents stockouts and excess inventory, both of which can impact cash flow and profitability.

Cash Disbursements for Merchandise Purchases

Cash payments for purchases are determined based on the company's accounts payable policies and credit terms with suppliers. The budget accounts for payments related to purchases made in April, May, and June, including the effect of to-be-paid balances from prior periods. This section helps forecast the company's outgoing cash flows for inventory procurement, a significant component of operational expenses.

Cash Budget

Integrating cash collections and disbursements, the cash budget provides an overview of cash inflow, outflow, and ending cash balance for each month and the quarter. Starting with a beginning cash balance, the forecast includes collections from customers and subtracts disbursements such as merchandise purchases, advertising, rent, salaries, utilities, equipment, dividends, and other expenses. The budget identifies periods of excess cash or possible deficits requiring financing actions such as borrowings or debt repayment.

Financing Activities

Cash shortfalls or surpluses are managed through financing activities. Borrowings increase cash when deficits occur, while repayments and interest expense reduce cash when there's an excess. Accurate forecasting of these activities ensures the company maintains adequate liquidity and optimizes capital structure.

Budgeted Income Statement

The projected income statement summarizes expected revenues, variable expenses like cost of goods sold and commissions, and fixed expenses such as advertising, rent, and salaries. The contribution margin is calculated by subtracting variable expenses from sales, providing insight into profitability. The net operating income is derived after deducting fixed expenses, and net income considers interest expenses, culminating in a comprehensive view of profitability for the quarter.

Budgeted Balance Sheet

The balance sheet estimates assets and liabilities at June 30. Assets include cash, accounts receivable (based on sales collections), inventory (based on purchases and sales), and property and equipment. Liabilities encompass accounts payable (for purchases), dividends payable, and other obligations. Shareholders' equity accounts include capital stock and retained earnings, which are adjusted for net income and dividends declared during the period.

Conclusion

Developing a comprehensive budget for Earring Unlimited involves integrating sales forecasts, cash flow projections, inventory planning, and financial statement preparation. These budgets are essential for effective management, decision-making, and ensuring the company's financial health over the upcoming quarter. Proper adherence to the budgeting process enables the company to anticipate cash needs, control expenditures, and achieve strategic objectives with a clear financial roadmap.

References

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