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Budgeting Edwin Company sells beach towels. Unit sales projections for the upcoming two months are as follows. Edwin sells each towel at a price of $15. Month May June Sales Projections in Units 18,000 21,000 Edwin expects that 75% of sales will be for cash and 25% will be on account. The company expects to collect 100% of the accounts receivable generated by credit sales in the month following the sale. Sales on account for the month of April were $54,000. Prepare a Sales Budget. Step 1: Sales Budget Calculations May Calculations June Section 1- Projected Sales Cash Sales Sales on Account Total Budgeted Sales Section 2- Schedule of Cash Receipts Current Cash Sales Plus: Collection of Accts Receivable Total Budgeted Collections Step 2: Inventory Purchases Budget Use the information from Step 1 and the following assumptions to prepare the Inventory Purchases Budget: . . Edwin's Budgeted COGS normally equals 60% of Total Budgeted Sales (see Step 1). Edwin desired ending inventory each month should be equal to 20% of next month's budgeted COGS. Budgeted COGS in July is $194,000. All inventory purchases are on account. Edwin's supplier requires 70% of the purchases to be paid for in the month of purchase. Edwin pays the remaining (30%) in the month after purchase. Edwin is scheduled to pay $32,000 in May for purchases made in April. Calculations May Calculations June Section 1: Projected Purchases Budgeted COGS Plus: Desired Ending Inventory Total Inventory Needed Less: Beginning Inventory Hint: April's ending inventory would be May's beginning inventory (20% x May COGS) Required Purchases (on account) Section 2: Schedule of Cash Payments Current Month's A/P Prior Month's A/P Budgeted Disbursements Step 3: Selling and Administrative (S&A) Expense Budget Edwin expects the following S&A expenses for the months of May and June. Cash paid for all S&A expenses are remitted in the month incurred. See completed budget below. No calculations necessary. May June Section 1- Projected S&A Wages $98,000 $98,000 Rent 7,000 7,000 Utilities 1,200 1,500 $106,200 $106,500 Total S&A Expenses before Interest Section 2- Schedule of Cash Pymts $106,200 $106,500 Step 4: Prepare a Cash Budget Prepare a Cash Budget with the following assumptions: . . Edwin's cash balance at the end of April was $31,000. Edwin wishes to maintain a cash balance of at least $30,000 at the end of each month. Edwin currently has a line of credit with a local bank. The balance of the line of credit was $150,000 at the end of April and May. The bank charges interest at a rate of 6% annually on the outstanding balance. Interest payments are paid monthly on the previous month's balance. Edwin can borrow up to $250,000 on this Line of Credit. When calculating the monthly interest on the line of Credit, use the following formula for each month: Outstanding Balance x Rate x 1/12 . In June, Edwin purchased new machinery to upgrade its inventory storage and delivery system. The cost of this new machinery was $75,000. Calculations May Calculations June Section 1- Cash Receipts Beginning Cash Balance Add: Cash Receipts Total Cash Available Section 2- Cash For Inventory Purchases For S&A Expenses Interest Expense Purchase of Machinery Total Disbursements Section 3: Financing Surplus (Shortage) Borrowing-Line of Credit Ending Cash Balance Step 5: Prepare a Pro Forma Income Statement: All of these amounts can be found from earlier steps. Calculations May Calculations June Sales Revenue Cost of Goods Sold Gross Margin Selling & Administrative Expenses Operating Income Interest Expense Net Income (Loss)

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