Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis.

The following
1
data have been assembled to assist in preparing the master budget for the first quarter:
2 As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account
Balances
Debits Credits
Cash 48000
Account Receivable 224000
Inventory 60000
Building and Equipment 370000
Account Payable 93000
Capital Stock 500000
Retained Earnings 109000
Totals $ 702000 702000
3 Actual sales for December and budgeted sales for the next four months are as follows:
Dec-10 $280,000
Jan-11 400000
Feb-11 600000
Mar-11 300000
Apr-11 200000
3 Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following
sale. The accounts receivable at December 31 are a result of December credit sales.

4 The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

5 Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month: advertising, $70,000
per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on
new assets acquired during the quarter, will be $42,000 for the quarter.

6 Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

7 One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid
in the following month.

8 During February, the company will purchase a new copy machine for $1,700 cash. During March,
other equipment will be purchased for cash at a cost of $84,500.

9 During January, the company will declare and pay $45,000 in cash dividends.

10 Management wants to maintain a minimum cash balance of $30,000. The company has an agreement
with a local bank that allows the company to borrow at the beginning of each
month. The interest rate on these loans is 12% per month and for simplicity we will assume that interest
is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest
at the end of the quarter.
Solution:
Hillyard Company
Sales Budget
For the Quarter ended March 30,2011

January February March Quarter

Budgeted Sales in Dollars 400000 600000 300000 1300000

Total Budgeted Sales 400000 600000 300000 1300000

Hillyard Company
Expected Cash Collection
For the Quarter ended March 30,2011

January February March Quarter

Account Receivable 12/31(80% of 280000) 224000 224000
January-11 Sales
20% of 400000 80000 80000
80% of 400000 320000 320000
February-2011 Sales
20% of 600000 120000 120000
80% of 600000 480000 480000
March -2011 Sales
20% of 300000 60000 60000
Total Cash Collection 304000 440000 540000 1284000

Hillyard Company
Inventory Purchase Budget
For the Quarter ended March 30,2011

January February March Quarter

Budgeted Cost of Goods Sold(60% of Sales) 240000 360000 180000 780000
Add: Desired Ending Inventory(25% of Next Month's COGS) 90000 45000 30000 30000
Total Needs 330000 405000 210000 810000
Less: Beginning Inventory 60000 90000 45000 60000
Required Inventory Purchase 270000 315000 165000 750000

Hillyard Company
Cash Disbursement for Purchase
For the Quarter ended March 30,2011

January February March Quarter

December Purchase 93000 93000
January Purchase(50% 0f 270000) 135000 135000 270000
February Purchase(50% 315000) 157500 157500 315000
March Purchase(50% of 165000) 82500 82500
Total cash Disbursement for Purchase 228000 292500 240000 760500

*Account Payable of December -2010 for Purchase Tk93000 will be paid in January-2011
 Hillyard Company
Cash Disbursement for operating Expenses
For the Quarter ended March 30,2011

January February March Quarter

Salaries and Wages 27000 27000 27000 81000
Advertising 70000 70000 70000 210000
Shipping (5% of Sales) 20000 30000 15000 65000
Other Expenses(3% of Sales) 12000 18000 9000 39000
Total Cash Disbursement 129000 145000 121000 395000

Hillyard Company
Cash Budget
For the Quarter ended March 30,2011

January February March Quarter

Beginning Cash Balance 48000 30000 30800 48000
Add: Cash Collection 304000 440000 540000 1284000
Total Cash Available 352000 470000 570800 1332000
Less: Cash Disbursement
Inventory Purchase 228000 292500 240000 760500
Operating Expense 129000 145000 121000 395000
Equipment Purchase 0 1700 84500 86200
Cash Dividend 45000 0 0 45000
Total Cash Disbursement 402000 439200 445500 1286700
Excess/Deficiency -50000 30800 125300 45300
Financing:
Borrowing 80000 80000
Repayments 0 -80000 -80000
Interest(80000*12%*3/12) 0 -2400 -2400
Total Financing 80000 0 -82400 -2400
Ending Cash Balance 30000 30800 42900 42900

Hillyard Company
Budgeted Income Statement
For the Quarter ended March 30,2011

Sales 1300000
Less: Cost of Goods Sold 780000
Gross Margin 520000
Less: Operating Expenses 395000
Depreciation 42000
Operating Income 83000
Less: Interest Expense 2400
Net Income 80600
 Hillyard Company
Budgeted Balance Sheet
For the Quarter ended March 30,2011

Current Assets
Cash 42900
Account Receivable(80% of 300000) 240000
Inventory 30000
Total Current Assets 312900
Building and Equipment 414200
(Beginning 370000+New purchase 86200-Depreciation 42000)
Total Assets 727100

Liabilities and Equity

Account Payable(50% of 165000) 82500
Equity:
Common Stock 500000
Retained Earnings:
Beginning 109000
add: Net Income 80600
Total 189600
Less: Cash Dividend 45000 144600
Total Liability and Equity 727100