Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process: Budgeted unit sales 500
Selling price per unit $1,970
Cost per unit $1,460
Variable selling and administrative expenses (per unit) $ 50
Fixed selling and administrative expenses (per year) $196,000
Interest expense for the year $ 13,000
Required:
Prepare the company’s budgeted income statement using an absorption income statement format shown below.
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:
Sales in Units
April 74,000
May 85,000
June 114,000
July 92,000
The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month’s sales. The inventory at the end of March was 7,400 units.
Required:
Prepare a production budget for the second quarter; in your budget, show the number of units to be produced each month and for the quarter in total.
Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Total cash receipts $310,000 $430,000 $360,000 $380,000
Total cash disbursements$365,000 $335,000 $325,000 $345,000
The company’s beginning cash balance for the upcoming fiscal year will be $25,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.
Required:
Complete the company's cash budget for the upcoming fiscal year. (Cash deficiency, repayments, and interest, should be indicated by a minus sign.)
The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year:
Ending Balances
Cash ?
Accounts receivable $ 8,500
Supplies inventory $ 4,700
Equipment $ 36,000
Accumulated depreciation $ 14,600
Accounts payable $ 2,200
Common stock $ 5,000
Retained earnings ?
The beginning balance of retained earnings was $32,000, net income is budgeted to be $16,300, and dividends are budgeted to be $2,700.

Required:

Prepare the company’s budgeted balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

Gig Harbor Boating

Budgeted Income Statement using absorption costing format:

Sales Revenue                                                        $985,000

Cost of Boats Sold                                                    730,000

Gross profit                                                            $255,000

Total variable selling and

administrative expenses                     $25,000

Fixed selling and

administrative expenses (per year)    196,000     $221,000

Income before interest and taxes                          $34,000

Interest expense for the year                                    13,000

Pretax Income                                                          $21,000

2. Down Under Products, Ltd. of Australia

Production Budget for the second quarter

                                           April            May          June       Total

Sales in Units                     74,000       85,000      114,000      273,000

Ending Inventory                8,500        11,400        9,200         9,200

Beginning Inventory              740        8,500        11,400            740

Units to be produced       81,760       87,900      111,800     241,460

3. Garden Depot

Summary of Cash Budget for the upcoming fiscal year:

                                 1st Quarter  2nd Quarter  3rd Quarter  4th Quarter

Beginning cash bal.   $25,000        $10,000       $63,800      $98,800

Total cash receipts   $310,000     $430,000    $360,000    $380,000

Total cash available $335,000     $440,000    $423,800    $478,800

Total cash

 disbursements     ($365,000)   ($335,000)  ($325,000)  ($345,000)

Bank loan (repyt)         40,000        (40,000)

Bank loan Interest                              (1,200)

Cash Balance           ($30,000)      $63,800       $98,800     $133,800

Required Minimum    $10,000       $10,000        $10,000       $10,000

4. Mecca Copy

Budgeted Balance Sheet for the coming year:

Budgeted Balance Sheet for the next year:

Ending Balances

Cash                                                          $ 18,200

Accounts receivable                                  $ 8,500

Supplies inventory                                     $ 4,700

Equipment                          $ 36,000

Accumulated depreciation $ 14,600       $ 21,400

Total Assets                                           $ 52,800

Accounts payable                                    $ 2,200

Common stock                                        $ 5,000

Retained earnings                                $ 45,600

Total Liabilities and Equity                 $ 52,800

Explanation:

1. Gig Harbor Boating:

Data and Calculations:

Budgeted unit sales 500

Selling price per unit $1,970

Sales Revenue = $985,000 ($1,970 x 500)

Cost per unit $1,460

Cost of Boats Sold = $730,000 ($1,460 x 500)

Variable selling and administrative expenses (per unit) $ 50

Total variable selling and administrative expenses = $25,000 ($50 x 500 )

Fixed selling and administrative expenses (per year) $196,000

Interest expense for the year $ 13,000

2. Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

a) Data and Calculations:

                                  March       April          May          June       July

Sales in Units              7,400      74,000       85,000      114,000      92,000

Ending Inventory          740        8,500        11,400        9,200

Beginning Inventory                      740         8,500        11,400       9,200

Units to be produced               81,760        87,900      111,800

3. Garden Depot

Data and Calculations:

                                1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Beginning cash bal.   $25,000        $10,000       $63,800      $98,800

Total cash receipts   $310,000     $430,000    $360,000    $380,000

Total cash available $335,000     $440,000    $423,800    $478,800

Total cash

 disbursements     ($365,000)   ($335,000)  ($325,000)  ($345,000)

Bank loan (repyt)         40,000        (40,000)

Bank loan Interest                              (1,200)

Cash Balance           ($30,000)      $63,800       $98,800     $133,800

Required Minimum    $10,000        $10,000       $10,000       $10,000

4. Mecca Copy:

Data and Calculations:

Budgeted Balance Sheet for the next year:

Ending Balances

Cash ?

Accounts receivable $ 8,500

Supplies inventory $ 4,700

Equipment $ 36,000

Accumulated depreciation $ 14,600

Accounts payable $ 2,200

Common stock $ 5,000

Retained earnings ?

Retained Earnings:

Beginning =   $32,000

Net income =   16,300

Dividends =      (2,700)

Ending =       $45,600

Gig Harbor Boating's budgeted income statement gives a snapshot into the future of its revenue, cost of boats sold, gross profit, and pretax income.  Thus, it uses the projections to guide management towards the achievement of its targets.

Similarly, Down Under Products, Ltd. of Australia prepares a production budget for the second quarter to determine how much units it needs to produce to meet sales or customers' demand.

Garden Depot, as a retailer, ascertains its cash needs by preparing budgeted cash flows for the coming year.

Finally, Mecca Copy cannot operate its center without an idea about its financial position for the next year.  Therefore, it prepares a budgeted balance sheet.  All these budgets guide managements of these various entities and prepare them for taking necessary actions to plan and keep their companies afloat.