Assessment 8: Master Budget and Flexible Budget Preparation

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Part A

BUS-FPX4061 - Managerial Accounting Principles Input values
Assessment 8: Master Budget and Flexible Budget Preparation Worksheet Company name Crouch Corp.
Part A Balance sheet date 12/31/17
Ending date of first quarter 3/31/18
Solve the given problem based on the following scenario.
The managers of Crouch Corp. need you to create the master budget for the months of January, February, and March of 2018. Master budget for January February March April
Crouch Corp. Estimated Balance Sheet (as of December 31, 2017)
Crouch Corp. Estimated Balance Sheet (as of December 31, 2017) Assets ($)
Assets ($) Cash 32,400
Cash 32,400 Accounts receivable 472,500
Accounts receivable 472,500 Inventory 135,000
Inventory 135,000 Total current assets 639,900
Total current assets 639,900 Equipment 486,000
Equipment 486,000 Less accumulated depreciation (60,750)
Less accumulated depreciation (60,750) Net equipment 425,250
Net equipment 425,250 Total assets 1,065,150
Total assets 1,065,150 Liabilities and Equity ($)
Liabilities and Equity ($) Accounts payable 324,000
Accounts payable 324,000 Bank loan payable 13,500
Bank loan payable 13,500 Taxes payable (due 3/15/2018) 81,000
Taxes payable (due 3/15/2018) 81,000 Total liabilities 418,500
Total liabilities 418,500 Common stock 425,250
Common stock 425,250 Retained earnings 221,400
Retained earnings 221,400 Total stockholders’ equity 646,650
Total stockholders’ equity 646,650 Total liabilities and equity 1,065,150
Total liabilities and equity 1,065,150
TRUE TRUE TRUE TRUE
Use the following data to prepare the master budget. Unit purchase price $25
·      A single product of Crouch Corp. can be purchased for $25 per unit and resold for $50 per unit. Unit sale price $50
The anticipated inventory level on December 31, 2017, is 2,500 units. Anticipated inventory on December 31, 2017 2500 units
This is actually more than its desired level for 2018, which is 20% of January's Ratio of inventory to future sales 20% of next month's desired sales
projected sales (in units). Projected sales are: January projected sales 5250 units
▪ 5,250 units for January February projected sales 6750 units
▪ 6,750 units for February March projected sales 8250 units
▪ 8,250 units for March April projected sales 7500 units
▪ 7,500 units for April Cash sales (percentage of total sales) 25%
·      The total sales consists of 25% cash sales and 75% credit sales. Credit sales (percentage of total sales) 75%
·      60% of credit sales is collected in the first month after the sale, and 40% is collected % of credit sales collected in the first month after sales 60%
in the second month after the sale. % of credit sales collected in the second month after sales 40%
·      $112,500 of the accounts receivable balance for December 31, 2017, is collected in Accounts receivable for December 31, 2017 - collected in January $112,500 TRUE
January and $360,000 is collected in February. Accounts receivable for December 31, 2017 - collected in February $360,000
·      20% of the payment for merchandise purchases is made one month after the % of purchases paid for one month after the purchase 20%
purchase, and 80% is made in the second month. % of purchases paid for two months after the purchase 80%
·      $72,000 of the balance of accounts payable for December 31, 2017, is paid in Accounts payable for December 31, 2017 - paid in January $72,000 TRUE
January, and $252,000 is paid in February. Accounts payable for December 31, 2017 - paid in February $252,000
·      Salaries for salespersons average $45,000 per year. In addition to this, a sales Average salary of salespersons $45,000
commission equal to 20% of each salesperson's sales is paid on a monthly basis. Sales commission as a percentage of each salesperson's sales 20%
·      Salaries for general administrative staff average $108,000 per year. General administrative staff annual salaries $108,000
·      Each month, $1,500 is paid for maintainance expenses. Monthly maintenance expenses $1,500
·      The December 2017 balance sheet reflects an equipment purchase in January 2017. Month of equipment purchase January 2017
Using the straight-line method, depreciation will occur over 8 years, with no January equipment purchases $27,000
salvage value. A full month's depreciation is recognized in the month in which the February equipment purchases $72,000
asset is purchased. March equipment purchases $21,600
·      The following new equipment purchases are projected for the next quarter: Purchase price of land $112,500
▪ $27,000 in January Yearly bank interest 12%
▪ $72,000 in February Minimum monthly ending cash balance $18,750
▪ $21,600 in March Date of payment of first quarter's income tax 15-Apr
·      The company has negotiated to purchase land for $112,500, which will be paid on Tax rate 35%
the last day of March, in cash. Years over which depreciation occurs 8
·      Crouch Corp. has arranged an agreement with its bank to take additional loans Period for which master budget is prepared January, February, and March 2018
as needed. The bank charges 12% interest per year. Crouch Corp. pays interest on the
monthly beginning balance at the end of each month. The company may make
full or partial loan payments on the last day of the month. According to this
agreement with the bank, the minimum ending cash balance each month must
be $18,750.
·      The first quarter's income tax is paid on April 15 at a tax rate of 35%.
Using the data provided, prepare the master budget for the first quarter of 2018,
including all the following budgets:
1. Monthly sales budgets (showing both budgeted unit sales and dollar sales)
2. Monthly merchandise purchases budgets
3. Monthly selling expense budgets
4. Monthly general and administrative expense budgets
5. Monthly capital expenditures budgets
6. Monthly cash budgets
7. Budgeted income statement for the entire first quarter (not for each month)
8. Budgeted balance sheet as of March 31, 2018
Note: Round numbers to the nearest dollar and use supporting calculations.
Crouch Corp.
Sales Budgets
January, February, and March 2018
Budgeted Units Budgeted Unit Price Budgeted Total Dollars
Crouch Corp.
Merchandise Purchases Budgets
January, February, and March 2018
January February February March Total
-1650
Crouch Corp.
Selling Expenses Budget
January, February, and March 2018
January February March Total
Crouch Corp.
General and Administrative Expenses Budget
January, February, and March 2018
January February March Total
* Depreciation expense calculations
Annual Depreciation Expense January February March Total
Crouch Corp.
Capital Expenditures Budget
January, February, and March 2018
January February March
Crouch Corp.
Cash Budgets
January, February, and March 2018
January February March
Supporting calculations January February March Total
Note A: Cash receipts from customers
$703,875
Note B: Cash payments for merchandise
Crouch Corp.
Budgeted Income Statement
For Three Months Ended March 2018
Crouch Corp.
Budgeted Balance Sheet
March 31, 2018