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Master Budget Example Mc Watters, aip 13


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Master Budget Example Mc Watters, AIP 8.13
Eugene Brewing Company is budgeting for the next year. The following is the company’s beginning balance sheet.


Eugene Brewing Company Balance Sheet, January 1, 2001

Assets




Liabilities and Equities




Cash

$10.000

Accounts Payable

$3.000

Accounts Receivable

20.000

Long term debt

50.000

Inventory

30.000







Total current assets

$60.000

Total liabilities

$53.000

Fixed Assets

200.000

Common stock at par

$10.000

Acc. Depreciation

(90.000)

Additional Paid in

20.000







Retained Earnings

87.000

Total assets

$170.000

Total liab and equities

$170.000

The company expects to collect the beginning g balance of accounts receivable in January. In general, 30% of the company’s sales are on a cash basis. Of the credit sales, 40% are paid in the following month, and 60% are paid in the second month after the sale.


The accounts payable at the beginning of the year must be paid January. All materials are purchased on credit and paid for in the following month.
The long term debt has an annual interest rate of 12%. Interest payments of 1% of the principal are made each month. The long term debt is not due for another five years.
Eugene brewing co. makes two different types of beer, an ale and a porter. The ale is a lighter beer that requires fewer ingredients than does the darker and heavier porter. The input requirements for a case of beer fore each type of beer follow:


For making ale

Material

Quantity per case

Cost

Hops

5 pounds

$0.30 /lb

Yeast

1 oz.

0.10 /oz

Sugar

0.5 lb.

0.40/lb

Bottles

24

0.05 / bottle




For making porter

Material

Quantity per case

Cost

Hops

10 pounds

$0.30 /lb

Yeast

1 oz.

0.10 /oz

Sugar

0.8 lb.

0.40/lb

Bottles

24

0.05 / bottle

The labor to make a case of beer is the same for each type of beer, 0.20 hours at $10 per hour. Labor is paid in the month earned.


Monthly overhead expenses are paid in the month incurred and expected to be as follows:


Electricity

$2.000

Indirect labor

20.000

Rent

5.000

Depreciation

2.000

Ale sells for $10 per case, and porter sells for $12 per case. Estimated sales (in cases) for Eugene Brewing follow:







Ale

Porter

January

3.000

4.000

February

3.000

5.000

March

4.000

3.000

April

2.000

2.000

The beginning inventory includes 2.000 cases of ale and 3.000 cases of porter. The company prefers to have inventory at the end of each month equal to the expected sales in the next month. Eugene Brewing uses a first in first out method of costing inventory.

The company must buy a new bottling machine fro $20.000 at the end of January.
a. estimate cash flows in each of the months

b. does the company need to borrow money in any of the months?



c. make a balance sheet as of the end of March and an income statement fro the first theree months. Assume that the company borrows cash at interest rate of 1% per month; and that they borrow at the beginning of the month.


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