Financiera

VILLANOVA UNIVERSITY
College of Commerce and Finance
Department of Accountancy

Accounting 1102 Prof. W. F. Devine
Chapter 9 -- Master Budget Preparation Summer 2002

Cyber ElectronicsCompany is a wholesaler of electronics products. Marcia Moore, General Manager of Marketing, has recently completed a sales forecast. She believes sales during the third quarter of 2002 and thereafter will increase by 3% each month over the previous month's sales. Cyber's balance sheet at June 30, 2002 is as follows:

|Cash|$ 123,550 |
|Accounts receivable |456,000 |
|Inventory |105,060 |
|Building and equipment (net of accumulated depreciation) | 1,200,000 |
| Total assets|$1,884,610 |
| | |
|Accounts payable |123,318 |
|Sales commissions payable |24,000 |
|Bond interest payable|75,000 |
|Property taxes payable |22,500 |
|Bonds payable (9%, issued in 1998, due in 2008) |1,000,000 |
|Common stock |360,000 |
|Retainedearnings |279,792 |
|Total liabilities and Stockholders’ equity |$1,884,610 |
| | |

Jack Jones, controller, is now preparing a monthly budget for the third quarter of 2002. In theprocess, the following information has been accumulated:

1. Sales for June 2002 is $600,000. Credit sales are typically 95% of total sales. Cyber's credit experience indicates that 20% of the credit sales are collected during the month of sale, and the remainder is collected during the following month.

2. Cyber's cost of goods sold is 68% of sales. Inventory is purchased on account, and70% of each month's purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, Cyber maintains inventory at the end of each month equal to 25% of the next month's projected cost of goods sold.

3. Jones has estimated that Cyber's other monthly expenses will be as follows:
Sales salaries,$22,000 (a)
Advertising and promotion, $8,000 (a)
Administrative salaries, $55,000 (a)
Sales commissions, 4% of total sales (b)
(a) Paid for each month as incurred. (b) Paid for in the month after commissions are earned.

In addition, depreciation expense for 2002 is $35,000 per month. Property taxes are $54,000 per year and are paid semiannually at the end ofJanuary and July. Interest on Bonds Payable is paid annually at the end of August.

4. Cyber's president, Davis Dowd, has indicated that the company will invest $350,000 in July for new warehouse with an automated inventory-handling system to control the movement of inventory. Dowd has asked Laura Lott, treasurer, to arrange any necessary financing for this warehouse and any other cash...