Group Project – Budgeting Universal Electronics is a small, rapidly growing wholesaler of consumer electronic products. The firmâ€™s main product lines are small kitchen appliances and power tools. Malinda Alexander, Universalâ€™s general manager of marketing, recently completed a sales forecast. She believes the companyâ€™s sales during the first quarter of 20×1 will increase by 15% each month over the previous monthâ€™s sales. Then Alexander expects sales to remain constant for several months. Universalâ€™s projected balance sheet as of December, 31, 20X0, is as follows: Cashâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦$ 45,000 Accounts receivableâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 270,000 Marketable securitiesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 15,000 Inventoryâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 154,000 Net Buildings & Equipmentâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 626,000 Total Assetsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..$1,110,000 Accounts Payableâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦. 176,400 Bond interest payableâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 18,750 Property Taxes payableâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 3600 Bonds Payable (15% due in 20X6)â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.â€¦â€¦ 300,000 Common Stockâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.â€¦â€¦â€¦. 500,000 Retained Earningsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 111,250 Total liabilities & equityâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦..$1,110,000 Shawn Garrity, the assistant controller, is now preparing a monthly budget for the first quarter of 20X1. In the process, the following information has been accumulated: 1. Projected sales for December 20X0 are $400,000. Credit sales typically are 75% of total sales. Universalâ€™s credit experience indicates 10% of the credit sales is collected during the month of sale, and the remainder is collected during the following month. 2. Universalâ€™s cost of goods sold generally is 70% of sales. Inventory is purchased on account and 40% of each monthâ€™s purchases are paid during the month of purchase. The remainder is paid during the following month. To have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next monthâ€™s projected cost of goods sold. 3. Garrity has estimated that the companyâ€™s other monthly expenses follow: a. Sales salariesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.$20,000 b. Advertising and promotionâ€¦. 17,500 c. Administrative salariesâ€¦â€¦â€¦.. 21,500 d. Depreciationâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦. 25,000 e. Interest on bondsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦ 3,750 f. Property taxâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 900 In addition, sales commissions run at the rate of 1% of sales. 4. Universalâ€™s president, Carrie Howland, has indicated the firm should invest $125,000 in an automated inventory handling system to control the movement of inventory in the firmâ€™s warehouse just after the new year begins. This equipment purchase will be financed primarily from the firmâ€™s cash and marketable securities. However, Howland believes Universal needs to keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment purchases will be financed using short term credit from a local bank. The minimum period for such a loan is three months. Garrit believes that short term interest rates will be 10% per year at the time of the equipment purchases. If a loan is necessary, Howland has decided it should be paid off by the end of the first quarter if possible. 5. The board of directors has indicated its intention to declare and pay dividends of $50,000 on the last day of each quarter. 6. The interest on any short term borrowing will be paid when the loan is repaid. Interest on Budgetâ€™s bonds is paid semiannually on January 31 and July 31 for the preceding six month period. 7. Property taxes are paid semiannually on February 28 and August 31 for the preceding six month period. REQUIRED: Work with your group (no more than 4 people) to prepare Universalâ€™s master budget for the first quarter of 20X1 by completing the following schedules and statements in an excel spreadsheet. You will need to name your workbook and then provide the analysis for a-i by utilizing excel formulas and references. See Blackboard for schedule formats. Given formats MUST be used. Points will be deducted for other formats used. a. Sales Budget b. Cash Receipts Budget c. Purchases Budget d. Cash Disbursements Budget e. Summary Cash Budget* f. Analysis of short-term financing needs g. Budgeted Income Statement for the first quarter of 20X1 h. Budgeted Statement of Retained Earnings for the first quarter of 20X1 i. Budgeted Balance Sheet as of 3/31/20X1 *Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs in requirement f. Next, finish the summary cash budget. NOTE: If you must contact the instructor for assistance on this project, there will be a consulting fee for the shared intellectual capital. A simple question and answer will result in a 1 point deduction per question from the final project. A question that results in computations will result in a 5 point deduction per question from the final project. Utilize your available resources (textbook, google, etc.). DUE DATE: April 11th. Submit your excel workbook to by the deadline by using UMKC Dropbox (https://dropbox.umkc.edu/). Donâ€™t forget to identify your group within the workbook, I suggest a cover worksheet with group member information. In addition to project submission, each group member will need to complete a group evaluation form which can be found on Blackboard. These will be considered when assigning individual grades. GRADING: The project is worth a total of 200 points. 195 points are assigned to the project directly based upon the correct mathematical answers, format, and usage of excel formulas/references. To ensure you earn the additional 5 points, the group evaluation form must be completed by each student and submitted via UMKC Dropbox by the above mentioned due date. Evaluations are taken very seriously and will be considered when determining final grade for project on a per student basis.
1) In order to ensure you are clear with respect to the production budget, the desired ending inventory is given in the balance sheet above (referring to the project worksheet), so use the $154k for December’s desired ending inventory. For the months going forward you’ll use the 50% of the following month’s COGS to determine desired ending inventory. Ergo the desired ending inventory is NOT $161k. And, as always, the ending inventory for one month becomes the beginning inventory for the following month. Here’s a check figure: Required purchases for December 2000 are $294,000.
Ok, here’s another clarification tid-bit: When the problem talks about a minimum cash balance requirement, this is only to be taken into consideration when computing the short-term financing needs. This does not apply to the rest of the problem and here’s why. So at 1/1/XX (whatever year it is), the president says, “We’re buying a machine. And since we’ve yet to receive money from sales or pay any bills let’s make sure we keep at LEAST $25,000 in the bank to cover bills and such.” We (the accountants) say, Ok sure. So we go back to our desk and crunch the numbers in order to determine our short-term financing needs. And we say, alright on 12/31 we had a cash balance of $45K, we have to maintain a cash balance of $25K so we’ve only got $20K to put towards this purchase and we’re gonna need a WHOLE lot more than that to buy this machine. So we rangle up some more money by selling stocks and then decide to take out a loan for the rest.
2) The cash minimum is only for the very first part of January, before cash receipts come and and cash disbursements go out. So please don’t freak out if your cash balance as of 3/31/XX is less than $25K. That’s OK!