Premier Ties is a division of Menswear, International. The division has an exclusive franchise to act as the nationwide distributor of a designer’s silk ties. Sales of this product have grown so rapidly over the past few years that the division vice president has decided to implement quarterly budgeting and planning procedures, starting April 1—the beginning of the second quarter in the company’s fiscal year. The following data has been assembled for the division:
Recent and forecasted sales in units are as follows:
January (actual) 20,000
February (actual) 24,000
March (actual) 28,000
April 35,000
May 45,000
June 60,000
July 40,000
August 36,000
September 32,000
The increase in sales before and during June reflects the increased activity surrounding Father’s Day. Premier prices this product at 70% over cost. All sales are on credit, net 15 days. Historically, 25% of sales have been collected in the month of sale, 50% in the following month, and the remaining 25% in the second month following the sale. Uncollectible accounts have been insignificant. Accounts receivable at the beginning of the second quarter is $229,500.
The division tries to maintain an inventory equal to 90% of the next month’s sales in units. The ties cost the company $5 each. Premier pays for 50% of its purchases in the month of purchase and the remaining 50% in the month after purchase. Accounts payable for purchases at the beginning of the second quarter is $85,750.
Premier pays all other cash operating costs in the month in which they are incurred. The division pays quarterly salaries of $66,000 plus a $0.50 commission per unit sold. Other quarterly operating expenses consist of: utilities, $42,000; insurance, $7,200; depreciation, $45,000; miscellaneous, $9,000.
REQUIREMENTS
[Remember, you are budgeting for the second quarter only]
Prepare a sales budget in units and dollars by month and for the quarter
Prepare a schedule of cash collections from sales by month and for the quarter
Prepare a purchases budget in units and dollars by month and for the quarter
Prepare a schedule of cash payments for purchases by month and for the quarter
Prepare a selling and administrative expense budget in dollars by month and for the quarter. List each expense separately—you may assume that quarterly fixed expenses are incurred uniformly during the quarter.