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Dimsdale Sports, a merchandising company, reports the following balance sheet at December 31. DIMSDALE SPORTS COMPANY Balance Sheet December 31Assets Cash $ 20,500Accounts receivable 520,000Inventory 157,500Equipment$ 636,000 Less: Accumulated depreciation79,500 Equipment, net 556,500Total assets $ 1,254,500Liabilities and Equity Liabilities Accounts payable$ 370,000 Loan payable14,000 Taxes payable (due March 15)91,000$ 475,000Equity Common stock$ 470,500 Retained earnings309,000 Total stockholders’ equity 779,500Total liabilities and equity $ 1,254,500 To prepare a master budget for January, February, and March, use the following information. The company’s single product is purchased for $30 per unit and resold for $57 per unit. The inventory level of 5,250 units on December 31 is more than management’s desired level, which is 20% of the next month’s budgeted sales units. Budgeted sales are January, 7,500 units; February, 9,000 units; March, 11,000 units; and April, 11,000 units. All sales are on credit. Cash receipts from sales are budgeted as follows: January, $258,250; February, $720,458; March, $522,662. Cash payments for merchandise purchases are budgeted as follows: January, $65,000; February, $329,300; March, $153,600. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $7,000 per month. General and administrative salaries are $12,000 per month. Maintenance expense equals $2,000 per month and is paid in cash. New equipment purchases are budgeted as follows: January, $36,000; February, $93,600; and March, $21,600. Budgeted depreciation expense is January, $ 7,000; February, $7,975; and March, $8,200. The company budgets a land purchase at the end of March at a cost of $160,000, which will be paid with cash on the last day of the month. The company has an agreement with its bank to obtain additional loans as needed. The interest rate is 1% per month and interest is paid at each month-end based on the beginning-month balance. Partial or full payments on these loans are made on the last day of the month. The company maintains a minimum ending cash balance of $20,500 at the end of each month. The income tax rate for the company is 41%. Income taxes on the first quarter’s income will not be paid until April 15. Required: Prepare a master budget for the months of January, February, and March that has the following budgets: 1.Sales budgets. 2.Merchandise purchases budgets. 3.Selling expense budgets. 4.General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers. 5.Capital expenditures budgets. 6.Cash budgets. 7.Budgeted income statement for entire quarter (not monthly) ended March 31. 8.Budgeted balance sheet as of March 31.

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Dimsdale Sports, a merchandising company, reports the following balance sheet at December 31. DIMSDALE SPORTS COMPANY Balance Sheet December 31Assets Cash $ 20,500Accounts receivable 520,000Inventory 157,500Equipment$ 636,000 Less: Accumulated depreciation79,500 Equipment, net 556,500Total assets $ 1,254,500Liabilities and Equity Liabilities Accounts payable$ 370,000 Loan payable14,000 Taxes payable (due March 15)91,000$ 475,000Equity Common stock$ 470,500 Retained earnings309,000 Total stockholders’ equity 779,500Total liabilities and equity $ 1,254,500 To prepare a master budget for January, February, and March, use the following information. The company’s single product is purchased for $30 per unit and resold for $57 per unit. The inventory level of 5,250 units on December 31 is more than management’s desired level, which is 20% of the next month’s budgeted sales units. Budgeted sales are January, 7,500 units; February, 9,000 units; March, 11,000 units; and April, 11,000 units. All sales are on credit. Cash receipts from sales are budgeted as follows: January, $258,250; February, $720,458; March, $522,662. Cash payments for merchandise purchases are budgeted as follows: January, $65,000; February, $329,300; March, $153,600. Sales commissions equal to 20% of sales dollars are paid each month. Sales salaries (excluding commissions) are $7,000 per month. General and administrative salaries are $12,000 per month. Maintenance expense equals $2,000 per month and is paid in cash. New equipment purchases are budgeted as follows: January, $36,000; February, $93,600; and March, $21,600. Budgeted depreciation expense is January, $ 7,000; February, $7,975; and March, $8,200. The company budgets a land purchase at the end of March at a cost of $160,000, which will be paid with cash on the last day of the month. The company has an agreement with its bank to obtain additional loans as needed. The interest rate is 1% per month and interest is paid at each month-end based on the beginning-month balance. Partial or full payments on these loans are made on the last day of the month. The company maintains a minimum ending cash balance of $20,500 at the end of each month. The income tax rate for the company is 41%. Income taxes on the first quarter’s income will not be paid until April 15. Required: Prepare a master budget for the months of January, February, and March that has the following budgets: 1.Sales budgets. 2.Merchandise purchases budgets. 3.Selling expense budgets. 4.General and administrative expense budgets. Hint: Depreciation is included in the general and administrative budget for merchandisers. 5.Capital expenditures budgets. 6.Cash budgets. 7.Budgeted income statement for entire quarter (not monthly) ended March 31. 8.Budgeted balance sheet as of March 31.

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Asked by: Ubaid
Created at: 2025-08-02 22:29:53

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Let's walk through the **master budget** for Dimsdale Sports for the first quarter, step-by-step, with clear calculations and schedules as requested. --- ## 1) **Sales Budget** | Month | Budgeted Sales Units | Selling Price per unit | Budgeted Sales ($) | |-----------|---------------------|-----------------------|--------------------| | January | 7,500 | $57 | $427,500 | | February | 9,000 | $57 | $513,000 | | March | 11,000 | $57 | $627,000 | | **Total** | **27,500** | | **$1,567,500** | --- ## 2) **Merchandise Purchases Budget** ### a. **Desired Ending Inventory** - Desired ending inventory = 20% of next month's sales (in units) - April sales = 11,000 units | Month | Budgeted Sales Units | Desired Ending Inventory (units) | Add: Desired Ending Inv. | Add: Budgeted Sales | Less: Beginning Inv. | Units to purchase | |-----------|---------------------|----------------------------------|--------------------------|---------------------|----------------------|-------------------| | January | 7,500 | 9,000 × 20% = 1,800 | 1,800 | 7,500 | 5,250 | 4,050 | | February | 9,000 | 11,000 × 20% = 2,200 | 2,200 | 9,000 | 1,800 | 9,400 | | March | 11,000 | 11,000 × 20% = 2,200 | 2,200 | 11,000 | 2,200 | 11,000 | **Calculation:** - Units to be purchased = Budgeted Sales + Desired Ending Inventory - Beginning Inventory ### b. **Cost of Purchases** Cost per unit = $30 | Month | Units to purchase | Cost per unit | Purchases ($) | |-----------|------------------|---------------|-----------------| | January | 4,050 | $30 | $121,500 | | February | 9,400 | $30 | $282,000 | | March | 11,000 | $30 | $330,000 | --- ## 3) **Selling Expense Budget** - **Sales Commissions:** 20% of sales - **Sales Salaries:** $7,000 per month | Month | Sales ($) | Commissions (20%) | Sales Salaries | Total Selling Expense | |-----------|-----------|-------------------|----------------|----------------------| | January | $427,500 | $85,500 | $7,000 | $92,500 | | February | $513,000 | $102,600 | $7,000 | $109,600 | | March | $627,000 | $125,400 | $7,000 | $132,400 | | **Total** | | | | **$334,500** | --- ## 4) **General and Administrative Expense Budget** - **Salaries:** $12,000 per month - **Maintenance:** $2,000 per month - **Depreciation:** Jan $7,000, Feb $7,975, March $8,200 | Month | Salaries | Maintenance | Depreciation | Total G&A Expense | |-----------|----------|-------------|--------------|-------------------| | January | $12,000 | $2,000 | $7,000 | $21,000 | | February | $12,000 | $2,000 | $7,975 | $21,975 | | March | $12,000 | $2,000 | $8,200 | $22,200 | | **Total** | $36,000 | $6,000 | $23,175 | **$65,175** | --- ## 5) **Capital Expenditures Budget** | Month | Equipment Purchases | Land Purchases | Total Capital Expenditures | |-----------|--------------------|----------------|---------------------------| | January | $36,000 | $0 | $36,000 | | February | $93,600 | $0 | $93,600 | | March | $21,600 | $160,000 | $181,600 | --- ## 6) **Cash Budget** ### a. **Beginning Balances** - Cash on Dec 31: $20,500 ### b. **Cash Receipts** | Month | Cash receipts from sales | |-----------|-------------------------| | January | $258,250 | | February | $720,458 | | March | $522,662 | ### c. **Cash Payments** - **Purchases:** Given - **Selling expenses:** Only commissions paid (20% of sales, already calculated above) - **Sales salaries:** $7,000 per month - **G&A salaries:** $12,000 per month - **Maintenance:** $2,000 per month - **Equipment purchases:** Schedule above - **Land purchase:** $160,000 in March - **Interest:** Calculated on beginning-of-month loan balance (see note below) - **Income taxes:** Paid in April (not in Q1) - **Loan repayments:** To be calculated to maintain minimum cash balance --- #### **Interest Calculation:** - Interest = 1% × loan balance at the start of the month - Repay loans with excess cash to maintain minimum balance of $20,500 --- ### **Cash Budget Table** | Month | Jan | Feb | Mar | |-----------|----------|----------|----------| | **Beginning Cash** | $20,500 | ? | ? | | **Add: Receipts** | 258,250 | 720,458 | 522,662 | | **Total available**| ? | ? | ? | | **Less: Payments** | | | | | Purchases | 65,000 | 329,300 | 153,600 | | Sales commissions | 85,500 | 102,600 | 125,400 | | Sales salaries | 7,000 | 7,000 | 7,000 | | G&A salaries | 12,000 | 12,000 | 12,000 | | Maintenance | 2,000 | 2,000 | 2,000 | | Equipment purchase | 36,000 | 93,600 | 21,600 | | Land purchase | 0 | 0 | 160,000 | | Interest on loan | calc | calc | calc | | **Total payments** | ? | ? | ? | | **Excess (Deficit)**| ? | ? | ? | | Borrowing/Repayment| ? | ? | ? | | **Ending Cash** | $20,500 | $20,500 | $20,500 | #### **Cash Payments Detail (excluding interest and loan activity):** **January:** - Purchases: $65,000 - Sales commissions: $85,500 - Sales salaries: $7,000 - G&A salaries: $12,000 - Maintenance: $2,000 - Equipment: $36,000 - Land: $0 - **Subtotal:** $207,500 **February:** - Purchases: $329,300 - Sales commissions: $102,600 - Sales salaries: $7,000 - G&A salaries: $12,000 - Maintenance: $2,000 - Equipment: $93,600 - Land: $0 - **Subtotal:** $546,500 **March:** - Purchases: $153,600 - Sales commissions: $125,400 - Sales salaries: $7,000 - G&A salaries: $12,000 - Maintenance: $2,000 - Equipment: $21,600 - Land: $160,000 - **Subtotal:** $481,600 --- #### **Calculate Borrowings/Repayments and Interest** We'll do each month step by step. #### **January** - Beginning cash: $20,500 - Receipts: $258,250 - Available: $278,750 - Less payments (subtotal): $207,500 - Excess: $71,250 **Interest:** - Loan at Dec 31: $14,000 - Interest: $14,000 × 1% = $140 - Total payments: $207,500 + $140 = $207,640 - Excess: $278,750 - $207,640 = $71,110 - Minimum cash required: $20,500 - **Repay loan:** $71,110 - $20,500 = $50,610 (can repay up to $14,000 only) - So, repay $14,000, loan balance becomes $0 at end of Jan. - Ending cash: $71,110 - $14,000 = $57,110 Since excess cash, but only need $20,500, can repay more if there's another loan, but since loan is $0, keep extra cash. #### **February** - Beginning cash: $57,110 - Receipts: $720,458 - Total available: $777,568 - Payments (subtotal): $546,500 - Interest: $0 (loan was repaid in Jan) - Total payments: $546,500 - Excess: $777,568 - $546,500 = $231,068 - No loan to repay. Ending cash: $231,068 - Since excess cash, but only need $20,500, keep $231,068 for now. #### **March** - Beginning cash: $231,068 - Receipts: $522,662 - Total available: $753,730 - Payments (subtotal): $481,600 - Interest: $0 (no loan carried) - Total payments: $481,600 - Excess: $753,730 - $481,600 = $272,130 - Land purchase is on last day, so all payments covered. - Ending cash: $272,130 - Only need $20,500, so can pay out dividends or other, but since not mentioned, carry forward. --- ### **Summary Table** | Month | Beg Cash | Receipts | Payments | Payments+Interest | End Cash | Loan Beg | Loan Repay | Loan End | Interest | |-----------|----------|----------|----------|------------------|----------|----------|------------|----------|----------| | Jan | 20,500 | 258,250 | 207,500 | 207,640 | 71,110 | 14,000 | 14,000 | 0 | 140 | | Feb | 71,110 | 720,458 | 546,500 | 546,500 | 245,068 | 0 | 0 | 0 | 0 | | Mar | 245,068 | 522,662 | 481,600 | 481,600 | 286,130 | 0 | 0 | 0 | 0 | **Note:** Since the company always has excess cash, no need to borrow. Ending cash is always above minimum. --- ## 7) **Budgeted Income Statement (for Quarter Ended March 31)** - **Sales:** $1,567,500 (from sales budget) - **COGS:** Total units sold × Cost per unit Units sold: Jan 7,500 + Feb 9,000 + Mar 11,000 = 27,500 COGS: 27,500 × $30 = $825,000 - **Gross Profit:** $1,567,500 - $825,000 = $742,500 - **Selling Expenses:** - Commissions: $313,500 (from above) - Sales salaries: $21,000 - Total: $334,500 - **G&A Expenses:** - Salaries: $36,000 - Maintenance: $6,000 - Depreciation: $23,175 - Total: $65,175 - **Operating Income:** $742,500 - $334,500 - $65,175 = $342,825 - **Interest Expense:** $140 (only in Jan) - **Pre-tax Income:** $342,825 - $140 = $342,685 - **Income Tax (41%):** $140,501 (rounded) - **Net Income:** $342,685 - $140,501 = $202,184 | Item | Amount | |-----------------------|-----------| | Sales | $1,567,500| | COGS | $825,000 | | **Gross Profit** | $742,500 | | Selling Expenses | $334,500 | | G&A Expenses | $65,175 | | **Operating Income** | $342,825 | | Interest Expense | $140 | | **Pre-tax Income** | $342,685 | | Income Tax (41%) | $140,501 | | **Net Income** | $202,184 | --- ## 8

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