# Master Budget Preparation for Sun Company (Q1 2011) Here’s a detailed solution for the requirements based on the data provided in the image. --- ## **1. Sales Budget** **Sales forecast for Q1 2011:** - January: 400,000 units - February: 400,000 units - March: 400,000 units - Selling price per unit: $10 **Monthly Sales:** - January: \( 400,000 \times \$10 = \$4,000,000 \) - February: \( 400,000 \times \$10 = \$4,000,000 \) - March: \( 400,000 \times \$10 = \$4,000,000 \) --- ## **2. Cash Receipts Budget** - 70% of sales are collected in the same month, 30% in the following month. - December 201 sales not given, so assume prior collections are not needed for Q1. | Month | Sales | Current Month (70%) | Next Month (30%) | Total Cash Receipts | |----------|---------------|---------------------|------------------|----------------------------| | January | $4,000,000 | $2,800,000 | $1,200,000 (Feb) | $2,800,000 | | February | $4,000,000 | $2,800,000 | $1,200,000 (Mar) | $2,800,000 + $1,200,000 = $4,000,000 | | March | $4,000,000 | $2,800,000 | - | $2,800,000 + $1,200,000 (from Feb sales) = $4,000,000 | **Total cash receipts in Q1:** - Jan: $2,800,000 - Feb: $4,000,000 - Mar: $4,000,000 - **Total:** $10,800,000 --- ## **3. Purchases Budget** - 40% of each month's sales is purchased as inventory. - Purchases are paid 50% in month of purchase, 50% next month. | Month | Sales | Purchases (40%) | Paid in Month (50%) | Paid Next Month (50%) | |----------|---------------|---------------------|---------------------|-----------------------| | January | $4,000,000 | $1,600,000 | $800,000 | $800,000 (Feb) | | February | $4,000,000 | $1,600,000 | $800,000 | $800,000 (Mar) | | March | $4,000,000 | $1,600,000 | $800,000 | $800,000 (Apr) | **Cash Disbursement for Purchases (Q1):** - Jan: $800,000 (Jan) + $800,000 (Dec 201 purchases, if any) - Feb: $800,000 (Feb) + $800,000 (Jan) - Mar: $800,000 (Mar) + $800,000 (Feb) --- ## **4. Expenses and Other Disbursements** **Cash Expenses (per month):** - Admin and selling: $160,000 (60% cash) = $96,000 cash/month - Depreciation: $20,000/month (non-cash; ignore for cash budget) - Sales commission: 5% of sales = .05 × $4,000,000 = $200,000/month **Other outflows:** - Loan interest: 10% per year on $200,000 (borrowed in Jan for equipment), paid at end of each quarter. - Interest for Q1: $200,000 × 10% × (3/12) = $5,000 - Property taxes: $10,000/quarter, paid March 31 - Equipment Purchase: $125,000 in January --- ## **5. Cash Disbursement Budget** | Description | Jan | Feb | Mar | |-------------------------|-------------|-------------|-------------| | Purchases (current) | $800,000 | $800,000 | $800,000 | | Purchases (prior month) | $ | $800,000 | $800,000 | | Admin/Selling (cash) | $96,000 | $96,000 | $96,000 | | Sales commission | $200,000 | $200,000 | $200,000 | | Equipment | $125,000 | $ | $ | | Loan principal | $ | $ | $ | | Loan interest | $ | $ | $5,000 | | Property taxes | $ | $ | $10,000 | | **Total** | $1,221,000 | $1,896,000 | $1,911,000 | --- ## **6. Cash Budget** **Opening cash (Jan 1, 2011):** $35,000 | Month | Opening Balance | Cash Receipts | Cash Disbursements | Closing Balance | |----------|-----------------|---------------|--------------------|---------------------| | January | $35,000 | $2,800,000 | $1,221,000 | $1,614,000 | | February | $1,614,000 | $4,000,000 | $1,896,000 | $3,718,000 | | March | $3,718,000 | $4,000,000 | $1,911,000 | $5,807,000 | --- ## **7. Budgeted Income Statement (Q1 2011)** **Sales:** $12,000,000 (Jan–Mar, 400,000 units × $10 × 3) **Cost of Goods Sold:** - Purchases: $1,600,000/month × 3 = $4,800,000 **Gross Profit:** $7,200,000 **Expenses:** - Admin and selling: $160,000 × 3 = $480,000 - Depreciation: $20,000 × 3 = $60,000 - Sales commission: $200,000 × 3 = $600,000 - Loan interest: $5,000 (for Q1) - Property taxes: $10,000 (for Q1) **Total Expenses:** $480,000 + $60,000 + $600,000 + $5,000 + $10,000 = $1,155,000 **Net Profit:** $7,200,000 – $1,155,000 = $6,045,000 --- ## **8. Budgeted Balance Sheet (March 31, 2011)** **Assets** - Cash: $5,807,000 - Accounts receivable: 30% of March sales = $1,200,000 - Marketable securities: $150,000 - Inventory: Purchases for April (40% of April sales; assume sales continue at $4,000,000, so $1,600,000) - Net PPE: Opening $250,000 + $125,000 (new equipment) – $60,000 (depreciation) = $315,000 - Total assets: Sum of above **Liabilities** - Accounts payable: 50% of March purchases = $800,000 - Notes payable: $100,000 - Loan for equipment: $200,000 (no principal repayment in Q1) **Equity** - Shareholders’ equity: Opening $900,000 + Q1 net profit $6,045,000 = $6,945,000 --- ### **Final Summary Table** | Item | Amount ($) | |----------------------------------|------------------| | **Q1 Sales** | $12,000,000 | | **Total Cash Receipts (Q1)** | $10,800,000 | | **Total Disbursements (Q1)** | $5,028,000 | | **Closing Cash (Mar 31, 2011)** | $5,807,000 | | **Net Profit (Q1)** | $6,045,000 | | **Total Assets (Mar 31, 2011)** | $9,072,000 | --- ## **Conclusion** Sun Company is projected to have robust cash flows and profitability in Q1 2011. With strong sales and careful expense management, the business will end the quarter with significant cash reserves and improved equity. The master budget provides a clear roadmap for operational and financial planning. --- **Let me know if you need the full, formatted balance sheet or income statement!**

# Master Budget Summary for Sun Company (Q1 2011) ## 1. Sales Budget The sales budget projects 400,000 units sold each month at a price of $10, resulting in monthly sales of $4,000,000. Over Q1, total sales amount to $12,000,000. ## 2. Cash Receipts Budget Cash receipts are derived from sales, with 70% collected in the current month and 30% in the following month. Total cash receipts for Q1 are projected to be $10,800,000. ## 3. Purchases Budget The purchases budget indicates that 40% of monthly sales are purchased as inventory, leading to monthly purchases of $1,600,000. Payments for these purchases are split between the current and following months. ## 4. Expenses and Other Disbursements Monthly cash expenses amount to $296,000, excluding non-cash items like depreciation. Additional outflows include loan interest and property taxes, which impact the cash budget. ## 5. Cash Disbursement Budget The cash disbursement budget outlines total disbursements for January, February, and March as $1,221,000, $1,896,000, and $1,911,000, respectively. This includes purchases, admin expenses, and other outflows. ## 6. Cash Budget Starting with an opening cash balance of $35,000, the cash budget projects a closing balance of $5,807,000 by the end of March. This reflects significant cash inflows from sales and controlled disbursements. ## 7. Budgeted Income Statement The budgeted income statement shows a net profit of $6,045,000 for Q1 2011 after accounting for total expenses of $1,155,000. Gross profit stands at $7,200,000 from total sales of $12,000,000. ## 8. Budgeted Balance Sheet As of March 31, 2011, total assets are projected at $9,072,000, primarily driven by cash and accounts receivable. Liabilities include accounts payable and a loan for equipment, with equity reflecting the net profit. --- ### Final Summary Sun Company is set to achieve strong sales and maintain a healthy cash position in Q1 2011. The budget indicates effective management of expenses, resulting in substantial profitability and asset growth.