⁷ Masters Budget

1. A Global Trading Ltd., has a branch in Nepal is preparing master budget for first three
months of the years 2068. The company has gathered some pertinent information to make
your job simple. The data relating to past and current sales are presented below.

Balances from last year Recent and expected sales

Accounts receivable $ 208,000 Falgun last $150,000

Account payable 200,000 Chaitra last 200,000

Cash balance 20,000 Baishak 2068 400,000

Jestha 2068 450,000

Ashad 2068 400,000

Shrawan 2068 500,000

Credit sales are 80 percent of total sales and 60 percent of credit sales are collectible in the
following month of sales and remaining 40 percent in the next following month of sales. The
amount of bad debts is negligible. All purchases are credit purchases and creditors are paid
in the following month of purchases.

The company has a policy to keep enough inventories each month to meet the sales
forecast of next month. The gross profit margin in sales is 50%.

The other operating expenses including salaries, wages, rent and taxes are $.20,000 per
month and other expenses are 2% of sales. These expenses are payable in the month they
become due. The company has plan to acquire a machine at a payment of $250,000 on
Baishak, and dividend of $10,000 on Jestha. The company’s policy requires it to maintain a
minimum cash balances of $20,000.

The company has entered into an agreement with the Standard Chartered Bank Ltd. for the
short term borrowing facilities at an effective rate of interest of 18% to meet its cash
deficiencies. All borrowings are to be assumed as borrowed on the first day of the month
and all payments are to be made on the last day of the month. Loans are received and paid
in multiples of $.5,000 and all interest are rounded up to nearest $100. The interest is
payable with the principal to the extent of re-fund of the principal.

Required:
a. Cash receipt and disbursement
b. A budgeted income statement
c. Budgeted balance sheet for three months sending Ashadh 2068.
2. Nepal Batteries Ltd. prepares its master budget on a quarterly basis. The following data
have been assembled to assist in preparation of the master budget for the second quarter
of 19×8
i. As of March 31, 19×8 (the end of the prior quarter), the company's balance were as
follows:

Cash Rs.9,000

Account receivable 48,000

Inventory 12,600

Plant and 200,000

equipment

Account payable 180,000

Capital stock Rs.18,300

Retained earnings 71,300

Rs.269600 Rs.269,600

ii. Actual sales for March and budgeted sales for April to July are as follows:

March Rs.60,000

April 70,000

May 85,000

June 90,000

July 50,000
iii. Sales are 20% for cash and 80% on credit. All credit sale term are net 30. The
accounts receivable at March 31 are a result of March credit sales.
iv. The company's gross profit rate is 40% of sales.
v. Monthly expenses are budgeted as follows:

Salaries and wages, Rs.7,500 per month;

Freight-out 6% of sales;

Advertising, Rs.6,000 per month;

Depreciation Rs.2,000 per month;

 Other expenses 4% of sales.

vi. At the end of each month, inventory is to be on hand equal to 30% of the following
month's sales needs, stated at cost.

vii. Half a month's inventory purchases are paid for in the month of purchase and half in the
following month.

viii. Equipment purchases during the quarter will be as follows;

April, Rs.11,500 and May, Rs.8,250.

ix. Dividends totaling Rs.4,000 will be declared and paid in June.

x. The company must maintain a minimum cash balance of Rs.8,000. An open line of credit
is available at a local branch of Nepal bank ltd. All borrowing is line at the beginning of a
month, and all payments are made at the end of a month. Borrowings and repayments
of principal must be made in multiple of rs.1000. Loan repayments are on a FIFO basis,
interest is paid only at the time of repayment of principal. However, any interest on
unpaid loans should be properly accrued when statements are prepared. The interest
rate is 12% per annum. (Figure interest on whole month, e.g., 1/12 ,2/12)

Required:
a. Merchandise Purchase Budget
b. Cash budget and financial requirement.
c. Operating Expenses Budget
d. Projected income statement for the quarter ending June 30.
e. Projected balance sheet as of June 30.

3. Super Company Limited has provided the following information.

● The end of year 20x1 estimated balance sheet data are given below.

Assets $ Liabilities and Capital $

Cash 20,000 Account payable 39,600

Account receivable 17,000 Note payable 40,000

Merchandise Inventory 4,800 Common stock 200,000

Plant & equipments 337,800 Retained earnings 100,000

379,600 379,600
● Expected sales units for the first five months of year 20X2 are as follows.

November
$60,000
20X1

December 20x1 70,000

January, 20x2 40,000

February, 20x2 60,000

March, 20x2 50,000

April, 20x2 40,000

May, 20x2 50,000

● Sales are on credit. The company's collection pattern is 80% in the month of sales, 15%
in the month following sales and 5% in the second month. The accounts receivable
balance in the balance sheet data shown earlier represents amount remaining due from
November and December sales.
● The gross profit margin is 40%.

● Desired ending inventory at the end of each month is 20% of next month's sales needs.

● Purchases are paid in the month following the purchase.

● Monthly expenses are budgeted as follows.

Salaries $ 4,000

Utilities 1,000

Insurance 1,000

Depreciation 2,000

● Selling expenses amount to 5% of the sales value. Period expenses are paid as incurred.

● Minimum desired cash balance is $6,000. The firm may borrow at the beginning of a
month and repay at the end of the month in multiples of $2,000 at an interest cost of
12%.
 ● The company expects to purchases plant costing $40,000 on January 30, 20X2 and
payment will be made in two equal installments in the next two months.
Requirements
a. Merchandise purchase budget
b. Projected income statement for first quarter ending March.
c. Monthly cash budget for first the quarter ending March, 20x2.
d. Projected balance sheet as on March 31, 20X2.

4. A trading company asked you to prepare its master budget for year 2012 and have been
provided with the following: The end of year 2011, estimated balance sheet data are given
below:

Rs. Rs.
Account payable 9,312 Cash 10,030
Note payable 40,000 Account receivable 13,520
Common stock 2,00,00 Inventory 6,208
0
Retained earnings 1,08,44 Plant & equipment 3,28,000
6
3,57,75 3,57,758
8

i) Expected sales units for first five months of year 2012 are:
January Rs.64,000
February 60,000
March 60,000
April 52,000
May 40,000
Sales are 20% for cash and remaining 80% on credit. Company's collection pattern is
80% in the month of sale, 15% in the month following the sale and 5% in the second
month following the sale. The accounts receivable balance in the balance sheet data
shown earlier represents amount remaining due from November sales which were
Rs.66,000 and December sales of Rs.68,000.
ii) The gross margin on sales is 45%. Desired ending inventory at the end of each month is
20% of next month's sales needs, stated at cost. Purchases are paid 70% in the month of
purchase and 30% in the month following the purchase. Note payable is due with
interest 12% on March 31, 2012.
iii Monthly expenses are budgeted as follows:
Salaries Rs.4,00
0
Utilities Rs.1;00
0
Insurance Rs.500
Depreciation Rs.2,00
 Selling expenses 5% of sales 0
value
iv) The company's minimum cash balance desired is Rs.10,000. The firm may borrow at the
beginning of a month and repay at the end of month in multiples of Rs.5,000.
v) The company expect to purchases plant costing Rs.110,000 on January 30.

Required:
a. Merchandise purchase budget for first quarter ending March.
b. Cash Receipt and Payment Budget for first quarter ending March.
c. Projected income statement
d. Projected balance sheet as on March 31, year 2012

5. Sukam Batteries Ltd. prepares its master budget on a quarterly basis. The following data
have been assembled to assist in preparation of the master budget for the second quarter
of 2013.
i. As of March 31, 2013 (the end of the prior quarter), the company's balance were as
follows:
Descriptions Amount Amount
Cash $10,000
Account receivable 48,000
Merchandise stock 12,600
Plant and equipment 250,000
Account payable $18,300
Capital stock 230,000
Retained earnings 72,300
Total $320,600 $320,600
ii. Actual sales for March and budgeted sales for April - July 2013 are as follows:
March $60,000
April 70,000
May 85,000
June 90,000
July 50,000
iii. Sales are 20% for cash and 80% on credit. All credit sale term are net 30. The accounts
receivable at March 31 are a result of March credit sales.
iv. The company's gross profit rate is 40% of sales.
v. Monthly expenses are budgeted as follows:
Salaries and wages $10,000 per month;
Freight-out 10% of sales;
Advertising, $6,000 per month;
Depreciation $5,000 per month;
vi. At the end of each month, inventory is to be on hand equal to 30% of the following
month's sales needs, stated at cost.
 vii. Half a month's inventory purchases are paid for in the month of purchase and half in the
following month.
viii. Equipment purchases during the quarter will be as follows;
April, $12,000, May $18,000 and June $5,000.
ix. Dividends totaling $5,000 will be declared and paid in June.
x. The company must maintain a minimum cash balance of $10,000. An open line of credit
is available at a local branch of SBI bank Ltd. All borrowing is line at the beginning of a
month, and all payments are made at the end of a month. Borrowings and repayments
of principal must be made in multiple of $5,000. Loan interest is paid only at the time of
repayment of principal. However, any interest on unpaid loans should be properly
accrued when statements are prepared. The interest rate is 12% per annum.
Required:
a) Merchandise purchase budget and Operating expenses budget
b) Cash budget with financial requirements
c) Projected income statement and projected balance sheet as of June 30, 2013.

6. Manufacturers Ltd., in the process of preparing master budget has gathered the
following information:
Past sales 2012 and sales forecasts 2013
Months Nov Dec Jan Feb Mar Apr May 2013
2012 2012 2013 2013 2013 2013
Sales in unit 20,000 15,000 20,000 30,000 35,000 40,000 40,000
Sales revenue($) 400,00 300,00 400,000 600,00 700,000 800,00 800,000
0 0 0 0
Manufacturing overhead cost budget for 2013
Months Jan 2013 Feb 2013 Mar 2013
Indirect materials $30,000 $35,000 $40,000
Indirect labour 60,000 70,000 80,000
Supervision 15,000 17,500 20,000
Repairs and maintenance 15,000 17,500 20,000
Depreciation 5,000 5,000 5,000
Total 125,000 145,000 165,000

The company's policy is 50% in cash and balance on credit. Credit sales will be collected as
50% in the month of credit sales, 30% in the next month of sales and balance in the next
following month of sales. All purchases are on credit. Purchase will be paid in the next
month of purchases and all other expenses will be paid in the month when they are due.
Selling expenses will be 10% of sales.

Each unit of output will require 1 unit of material and 2 hours of direct labour hours. Direct
labour hour will cost $2 per hour and each unit of material will cost $ 4.

The raw material inventory and finished goods inventory will be equal to next month’s
production need and sales need respectively. Company will keep minimum cash balance of
$10,000 each month and in Dec. last year the cash balance was $10,000. Finished goods and
 raw material inventory at the end of December were 20,000 units each. Creditors payable
for December purchases were of $80,000.

The company will have to retire debenture debts of $100,000 in the month of January and
also buy a machine costing $50,000. Soft loan will be available at an interest rate of 12% per
annum from the commercial banks. Borrowing will be in a multiple of $10,000 and
repayment will be in $10,000. The interest will be paid at the time of repayment on the
amount of loan.
Required:
a. Material purchase budget for 1st three months 2013. [5]
b. Cash collection and disbursement budget for 1st three months 2013. [10]

7. MG Television Manufacturers Ltd., in the process of preparing master budget has gathered
the following information:

Past sales and forecasted sales for coming months

Months Nov Dec Jan Feb Mar Apr May

Sales in unit 20,000 15,000 20,000 30,000 35,000 40,000 35,000

Sales revenue Rs.400,000 300,000 400,00 600,000 700,000 800,00 700,000

0 0
Manufacturing overhead cost budget

Months Jan Feb Mar

Indirect materials Rs.30,000 Rs.35,00 Rs.40,000

0
Indirect labor 60,000 80,000
70,000
Supervision 15,000 20,000
17,500
Repairs and maintenance 15,000 20,000
17,500

Total Variables overhead @Rs.1 120,000 140,000 160,000

Fixed -Depreciation 5000 5000 5000

Total overhead 125,000 145,000 165,000

 Sales and cash collection policy
50% of sales will be in cash and balance on credit. Credit sales will be collected as 50% in the
month of credit sales, 30% in the next month of sales and balance in the next following
month of sales. Account receivable was Rs. 230,000 (i.e. Rs.80,000 of November sales and
Rs.150,000 of December sales).

Purchases and payment policy

Purchase will be paid in the next month of purchases and all other expenses will be paid in
the month when they are due. Selling and other expenses will be Rs 2 per unit of sales. Each
unit of output will require 1 unit of material and 2 hours of direct labor. Direct labor hour
will cost Rs.2 per hour and each unit of material will cost Rs.4. Creditors payable for
December purchases were of Rs.120,000.

Inventory policy
The raw material inventory and finished goods inventory will be equal to next month’s
production need and sales need respectively. At the end of December last year, finished
goods and raw material inventory at the end of December were 20,000 units and 30,000
units respectively.

Company will keep minimum cash balance of Rs.10,000 each month and in December last
year the cash balance was Rs.10,000. The company will have to retire 10% debenture debts
of Rs.100,000 in the month of January. Soft loan will be available at an interest rate of 12%
per annum from the commercial banks. Borrowing will be in a multiple of Rs.10,000 and
repayment will be in Rs.5,000. The interest will be paid at the time of repayment on the
amount of loan.

Required:
a. Production budget
b. Material purchase budget
c. Cash collection and disbursement budget for 3 months ending March.

8. A manufacturing company provides you the following information necessary to prepare

master budget first quarter ending 2011:
Schedule – 1
Opening Balance Sheet
As on January 2011
Liabilities Rs. Assets Rs.
Accounts Payable 100,000 Inventory
F.inished product 20,000 Units 280,000
Owners Equity 494,000 Raw material 50,000 units 100,000
 Debenture Loan 100,000 Accounts Receivable 208,000
Fixed Assets 96,000
Cash at Bank 10,000
694,000 694,000
Schedule – 2
Past sales 2010 and Forecasted Sales for 2011
Months Nov. Dec. Jan. Feb. Mar. April May
Sales in units 15,000 20,000 20,000 25,000 30,000 35,000 40,000
Sales Revenue 300,000 400,000 400,000 500,000 600,000 700,000 800,000
Schedule – 3
Production Budget for 2011
Month Jan. Feb. Mar. April Total
Production in units 25,000 30,000 35,000 40,000 130,000

Schedule–4
Manufacturing Overhead Cost Budget for 2011
Months Jan Feb Mar
Indirect Material 50,000 60,000 70,000
Indirect Wage 25,000 30,000 35,000
Depreciation 2,000 2,000 2,000
Others 48,000 48,000 48,000
Total 125,000 140,000 155,000
Of the total sales, 20% will be in cash and 80% on credit. 50% of credit sales will be realized in
the month of sales, 30% in the next month of sales and the balance in the next following month
of sales. Bad and uncollectible debts will be negligible.

Each unit of finished product will need 2 units of raw materials at a cost of Rs. 4, and direct
labour hours of 2 at the rate of Rs. 3.50 per direct labour hour. The selling and distribution cost
will be 10% of sales revenue. All direct labour cost and overheads cost will be paid in the month
when they become due. All purchases will be paid in the next month of purchases.

Desired ending balance of raw material at the end of each month will be sufficient inventory
units to meet next month's production need; and a minimum cash and bank balance of Rs.
10,000. Debenture debts will mature on early January next year.

The company has entered into agreement with a commercial bank for the line of credit to meet
the deficiency of cash. According to the agreement, all borrowings will be in a multiple of Rs.

05,000 and payments in Rs. 1,000 with an interest of 12% for the amount of loan repaid.
Required:
a. Material purchase budget
b. Direct labour cost budget
c. Operating expenses Budget (Mfd. overhead budget is given)

d. Cash collections and disbursement budget

e. Budgeted income statement
f. Budgeted balance sheet at the end of March

9. Payme Company’s management asks you to prepare its master budget using the following
information. The budget is to cover the months of April, May, and June of 2017.

Assets Amount Liability and equity Amount

50,00 63,81
Cash 0 Account payable 8

1,75,00 12,00
account receivable 0 Short term note payable 0

30,79 2,00,00
Raw material inventory 8 Long term note payable 0

96,60 4,35,00
Finished goods inventory 0 Capital 0

3,90,00 31,58
Equipment 0 Retained earning 0

7,42,39 7,42,39
8 8

Additional Information
a. Sales for March total 10,000 units. Expected sales (in units) are: 10,500 (April), 9,500 (May),
10,000

(June), and 10,500 (July). The product’s selling price is $25 per unit.

b. Company policy calls for a given month’s ending finished goods inventory to equal 80% of the
next month’s expected unit sales. The March 31 finished goods inventory is 8,400 units,
which complies with the policy. The product’s manufacturing cost is $11.50 per unit,
including per unit costs of $6.35 for materials (0.5 lbs. at $12.70 per lb.), $3.75 for direct
labor (0.25 hour × $15 direct labor rate per hour), $0.90 for variable overhead, and $0.50 for
fixed overhead. Fixed overhead consists entirely of $5,000 of monthly depreciation expense.
Company policy also calls for a given month’s ending raw materials inventory to equal 50%
of next month’s expected materials needed for production. The March 31 inventory is 2,425
units of materials, which complies with the policy. The company expects to have 2,100 units
of materials inventory on June 30.

c. Sales representatives’ commissions are 12% of sales and are paid in the month of the sales.
The sales manager’s monthly salary will be $3,500 in April and $4,000 per month thereafter.

d. Monthly general and administrative expenses include $8,000 administrative salaries and
0.9% monthly interest on the long-term note payable.

e. The company expects 30% of sales to be for cash and the remaining 70% on credit.
Receivables are collected in full in the month following the sale (none is collected in the
month of the sale).

f. All direct materials purchases are on credit, and no payables arise from any other
transactions. One month’s purchases are fully paid in the next month. Materials cost $12.70
per pound.

g. The minimum ending cash balance for all months is $50,000. If necessary, the company
borrows enough cash using a short-term note to reach the minimum. Short-term notes
require an interest payment of 1% at each month-end (before any repayment). If the ending
cash balance exceeds the minimum, the excess will be applied to repaying the short-term
notes payable balance.

h. Dividends of $100,000 are to be declared and paid in May.

i. No cash payments for income taxes are to be made during the second calendar quarter.
Income taxes will be assessed at 35% in the quarter.

j. Equipment purchases of $55,000 are scheduled for June.

Required: 902 30 Marks

Prepare the following budgets and other financial information as required:

1. Sales budget

2. Production budget.

3. Direct material purchase budget.

4. Direct labor budget.

5. All overhead budget

6. Cash budget.

7. Budgeted income statement and budgeted statement of retained earnings,

8. Budgeted balance sheet.