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Data regarding VeeLanceCorporation store's operations follow:
Sales are budgeted at $340,000 for November, $360,000 for December, and $350,000 for January.
Collections are expected to be 75% in the month of sale and 25% in the month following the sale.
The cost of goods sold is 71% of sales.
The the company desires an ending merchandise inventory equal to 75% of the cost of goods sold in the following month.
Payment for merchandise is made in the month following the purchase.
Other monthly expenses to be paid in cash are $21,400.
Monthly depreciation is $21,200.
Ignore taxes.
Balance SheetOctober 31
AssetsCash$22,200
Accounts receivable83,200
Merchandise inventory181,050
Property, plant and equipment (net of $596,000 accumulated depreciation)1,006,000
Total assets$1,292,450
Liabilities and Stockholders' EquityAccounts payable$196,200
Common stock640,000
Retained earnings456,250
Total liabilities and stockholders' equity$1,292,450.
Required:
a. Prepare a Schedule of Expected Cash Collections for November.
b. Prepare a Merchandise Purchases Budget for November.
c. Prepare Cash Budgets for November.
d. Prepare Budgeted Income Statement for November.
e. Prepare a Budgeted Balance Sheet for the end of November.
f.Explain, in your own words, the purpose of a budget. Does it guarantee performance? does it ensure that a company will be profitable?
g. Assume that the company desires a gross profit margin (ratio) of 25%. If the budget is met, will the company meet the desired goal? Explain.
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