Module 6 Case Study
Module 6 Case Study
Near the end of 2013, the management of Simid Sports Co., a manufacturing company, prepared the following estimated balance sheet for December 31, 2013.
To prepare a master budget for January, February, and March of 2014, management has gathered the following information:
Simid Sports’ single product is purchased for $30 per unit and resold for $55 per unit. The expected inventory level of 2,500 units on December 31, 2013, is more than management’s desired level for 2014 which is 20% of the next month’s expected sales (in units). Expected sales are:
January, 3,500 units;
February, 4,500 units;
March, 5,500 units; and
April, 5,000 units.
Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $62,500 is collected in January and the remaining $200,000 is collected in February.
Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after purchase. For the December 31, 2013, accounts payable balance, $40,000 is paid in January and the remaining $140,000 is paid in February.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $30,000 per year.
General and administrative salaries are $72,000 per year. Maintenance expense equals $1,000 per month and is paid in cash.
Equipment reported in the December 31, 2013, balance sheet was purchased in January 2013. It is being depreciated over eight years using the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $18,000; February, $48,000; and March, $14,400. This equipment will be depreciated using the straight-line method over eight years with no salvage value. A full month’s
Near the end of 2013, the management of Simid Sports Co., a manufacturing company, prepared the following estimated balance sheet for December 31, 2013.
To prepare a master budget for January, February, and March of 2014, management has gathered the following information:
Simid Sports’ single product is purchased for $30 per unit and resold for $55 per unit. The expected inventory level of 2,500 units on December 31, 2013, is more than management’s desired level for 2014 which is 20% of the next month’s expected sales (in units). Expected sales are:
January, 3,500 units;
February, 4,500 units;
March, 5,500 units; and
April, 5,000 units.
Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale. For the December 31, 2013, accounts receivable balance, $62,500 is collected in January and the remaining $200,000 is collected in February.
Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after purchase. For the December 31, 2013, accounts payable balance, $40,000 is paid in January and the remaining $140,000 is paid in February.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are $30,000 per year.
General and administrative salaries are $72,000 per year. Maintenance expense equals $1,000 per month and is paid in cash.
Equipment reported in the December 31, 2013, balance sheet was purchased in January 2013. It is being depreciated over eight years using the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $18,000; February, $48,000; and March, $14,400. This equipment will be depreciated using the straight-line method over eight years with no salvage value. A full month’s