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Option #2: Cost of Production Vonn Company, a furniture store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the quarter: 1. As of the end of the prior quarter, September 30, the company's general ledger showed the following account balances: Cash $62,000 (debit) counts receivable $480,000 (debit) Inventory $78,000 (debit) Buildings and equipment, net $570,000 (debit) Accounts payable $193,000 (credit) Capital stock $300,000 (credit) Retained earnings $619,000 (credit) 2. Actual sales for September and budgeted sales for the next four months are as follows: September $280,000, October $400,000, November $600,000, December $300,000 and January 200,000 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 ales. 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 per quarter 6. Each month's ending inventory should equal 25% of the following month's cost of goods sold 7. One half of the month's inventory purchases is paid for in the month of purchase; the other 8. During November, the company will purchase a new copy machine for $1,700 cash. During 9. During October, the company will declare and pay $45,000 in cash dividends. half is paid in the following month. December, other equipment will be purchased for cash at a cost of $84,500. 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 in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% 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

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