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Royal Company is preparing budgets for the second quarter ending June 30, 2015.
Budgeted sales of the companys only product for the next five months are:
April 2015
May 2015
June 2015
July 2015
August 2015
20,000 units
50,000 units
30,000 units
25,000 units
15,000 units
Management desires to have materials on hand at the end of each month equal to 10% of
the following months production needs.
3B. Additional data for schedule of expected cash disbursements for materials
Half of a months purchases are paid for in the month of purchase; the other half is paid for
in the following month.
A line of credit is available at a local bank that allows the company to borrow up to
$75,000.
a.
All borrowing occurs at the beginning of the month, and all repayments occur at the
end of the month.
b.
Any interest incurred during the second quarter will be paid at the end of the quarter.
The interest rate is 16% per year.
2.
Royal Company desires a cash balance of at least $30,000 at the end of each month. The
cash balance at the beginning of April was $40,000.
3.
4.
Equipment purchases of $143,700 are scheduled for May and $48,800 for June. This
equipment will be installed and tested during the second quarter and will not become
operational until July, when depreciation charges will commence.
REQUIRED:
The following elements of the master budget MUST be prepared in this exercise:
1A. Sales budget
1B. Schedule of expected cash collections
2.
Production budget.
5.
6.
7.
8.
Cash budget.
9.