Give step-by-step solution with explanation and final answer:The followin lata rts othe persons of XYZ Company, ones goods compery Thi dt as of rch 31. Co =
BE oc i no Mit sort Wo, i
* St0cKS 70. 00

Question

Give step-by-step solution with explanation and final answer:The followin lata rts othe persons of XYZ Company, ones goods compery Thi dt as of rch 31. Co =
BE oc i no Mit sort Wo, i
* St0cKS 70. 000Retane camingsS29,070 The gross meron 408 of sles. Actual and bee sles cto Merch (sch) =
 70,000AP-SES. D00MaYSY2. 000.NESIR DORIS), 000 Sales Are 70% for cash and 306% 04 Tcl Crect safes are collected in a
the month following sae. The Sccounts receivable of March 31 are a real of March crt sales. Each fs ening inveriory Bs
Sous cn 70% oe folowng ors gst cosof a0 £0 One fof ONS ventory purchases 50 rin i
| thermore The omer nas gid ox in te Tolowig rth Toco py of Mar 1 eet EE
March purchase of ertory Monthy expenses re a flows: commissions] 09 of cles: ren, 3, op per mont: ober =
expenses (excluding depreciston), £3 of sales. Tea ram Ci ar pad oft, Depreciation $5,000 per marth & E
ches epreciation on new sce). Eaupment casing 40,600 Wil af] iil ‘Apri end ecuipment cst § =
Eo 000i purchase for ac i iy. Management Would ef fling mur cash Sc of st 15.000 oe 2
= enc of each month The company hat an amd il iT increments of $1,000 E
"atthe beginning of ssc mort, p10 50a oa orc ra

VIPSolutions · Accepted Answer

Certainly! Let's break down the problem step by step. The question provides detailed data about XYZ Company and asks for several budget schedules. Here’s how to approach it:

---

## **Step 1: Extract Key Data**

**Given Balances as of March 31:**
- **Cash:** $30,000
- **Accounts receivable:** $21,000
- **Inventory:** $40,000
- **Building and equipment (net):** $150,000
- **Accounts payable:** $21,930
- **Common stock:** $170,000
- **Retained earnings:** $29,070

**Budgeted Sales (all 30% cash, 70% credit):**
- **March (actual):** $78,000
- **April:** $85,000
- **May:** $92,000
- **June:** $98,000
- **July:** $60,000

**Other Info:**
- Credit sales are collected in the month following sale.
- Accounts receivable at March 31 are all from March credit sales.
- Each month’s ending inventory should be 70% of next month’s budgeted cost of goods sold (COGS).
- Purchases: Half paid in month of purchase, half in next month.
- Accounts payable at March 31 are from March purchases.
- Monthly expenses: 
  - Commissions: 10% of sales
  - Rent: $3,000/month
  - Other expenses: 5% of sales
- Depreciation: $5,000/month
- Equipment purchase: $5,000 cash in April, $25,000 cash in May
- Minimum cash balance: $15,000
- Borrow in $1,000 increments at 12% per annum (1% per month), repaid at end of quarter.

---

## **Step 2: Prepare Sales and Cash Collections Budgets**

### **2.1. Sales Budget**
| Month | Total Sales |
|-------|------------|
| April | $85,000    |
| May   | $92,000    |
| June  | $98,000    |

### **2.2. Cash Collections**
- **Cash Sales:** 30% of current month sales
- **Credit Sales:** Collected next month

#### **April:**
- Cash: 30% of $85,000 = $25,500
- Credit (from March): 70% of $78,000 = $54,600
- **Total Collections in April:** $25,500 + $54,600 = **$80,100**

#### **May:**
- Cash: 30% of $92,000 = $27,600
- Credit (from April): 70% of $85,000 = $59,500
- **Total Collections in May:** $27,600 + $59,500 = **$87,100**

#### **June:**
- Cash: 30% of $98,000 = $29,400
- Credit (from May): 70% of $92,000 = $64,400
- **Total Collections in June:** $29,400 + $64,400 = **$93,800**

---

## **Step 3: Merchandise Purchases Budget**

- **COGS = 60% of Sales** (Gross margin is 40% ⇒ COGS is 60%)

#### **Calculate Ending Inventory (70% of Next Month's COGS):**

| Month | Sales   | COGS (60%) | Next Month COGS | Ending Inventory (70% of next month COGS) |
|-------|---------|------------|-----------------|-------------------------------------------|
| March | 78,000  | 46,800     | 51,000 (Apr)    | .7 × 51,000 = $35,700                    |
| April | 85,000  | 51,000     | 55,200 (May)    | .7 × 55,200 = $38,640                    |
| May   | 92,000  | 55,200     | 58,800 (June)   | .7 × 58,800 = $41,160                    |
| June  | 98,000  | 58,800     | 36,000 (July)   | .7 × 36,000 = $25,200                    |

**Purchases Formula:**  
$$ \text{Purchases} = \text{COGS} + \text{Ending Inventory} - \text{Beginning Inventory} $$

| Month | COGS   | Ending Inv | Beginning Inv | Purchases                    |
|-------|--------|------------|---------------|------------------------------|
| April | 51,000 | 38,640     | 35,700        | 51,000 + 38,640 - 35,700 = **$53,940** |
| May   | 55,200 | 41,160     | 38,640        | 55,200 + 41,160 - 38,640 = **$57,720** |
| June  | 58,800 | 25,200     | 41,160        | 58,800 + 25,200 - 41,160 = **$42,840** |

---

## **Step 4: Schedule of Expected Cash Disbursements for Purchases**

- **Half paid in month of purchase, half next month**

| Month | Purchases | 50% This Month | 50% Next Month (from last month) | Total Cash Payment |
|-------|-----------|----------------|----------------------------------|--------------------|
| April | $53,940   | $26,970        | $26,970 (from March)             | $26,970 + $21,930 = **$48,900** |
| May   | $57,720   | $28,860        | $26,970 (from April)             | $28,860 + $26,970 = **$55,830** |
| June  | $42,840   | $21,420        | $28,860 (from May)               | $21,420 + $28,860 = **$50,280** |

---

## **Step 5: Selling and Administrative Expenses Budget**

- **Commissions:** 10% of sales
- **Rent:** $3,000/month
- **Other expenses:** 5% of sales
- **Depreciation:** $5,000/month

| Month | Sales   | Commissions (10%) | Other Exp (5%) | Rent   | Depreciation | Total (Excl Depr.) |
|-------|---------|-------------------|---------------|--------|--------------|--------------------|
| April | 85,000  | 8,500             | 4,250         | 3,000  | 5,000        | 8,500 + 4,250 + 3,000 = **$15,750** |
| May   | 92,000  | 9,200             | 4,600         | 3,000  | 5,000        | 9,200 + 4,600 + 3,000 = **$16,800** |
| June  | 98,000  | 9,800             | 4,900         | 3,000  | 5,000        | 9,800 + 4,900 + 3,000 = **$17,700** |

---

## **Step 6: Equipment Purchases**

- **April:** $5,000
- **May:** $25,000

---

## **Step 7: Cash Budget**

**Structure:**
- Beginning Cash
- Add: Collections
- Less: Purchases, S&A Expenses (exclu

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