Budgeting Process for Wine To End Whining

Question:


A relatively new company, Wine To End Whining, Inc., has determined they need to engage in a budgeting process as part of their new strategic plan. The Company has asked you to provide the following items for the months of January, February, and March of 2017: A) a Purchases Budget; B) a Cash Budget; C) a Budgeted Income Statement; and D) a Budgeted Balance Sheet. They have provided you with the planning document below and also, with their December 31, 2016 Balance Sheet. Please complete the four items requested on Worksheet Tabs A, B, C, and D of this Workbook. Check Figures are provided for you on each Worksheet.

		WINE TO END WHINING, INC.
		PLANNING DATA FOR 2017

		All Sales are on Credit
		Collections of Accounts Receivable:
Month of Service	56%
Month following Service	44%

Actual December 2016 Sales	$ 2,00,000
Expected Sales in Dollars
January	$ 2,20,000
February	$ 1,93,000
March	$ 1,78,000
April	$ 2,01,000

Cost of Goods Sold as a percentage of selling price.	60%

Planned ending inventory as a percentage of next month's required inventory.	65%

Purchases are are all on credit.
Purchases paid in current month	30%
Purchases paid in next month	70%


Sales commission as a percent of sales	3%
Sales commission are paid one month after the month incurred.

Advertising expenses have a fixed and variable portion:
Fixed portion	$4,200
The fixed portion of the advertising is paid in the current month.
Variable portion as a percentage of sales	1%
The variable portion is paid one month after the month incurred.

Insurance policy:
Months of insurance coverage paid for	12
The policy period is from February 1 to January 31 each year
The premium to be paid on February 1, 2017 is	$18,000
The premium will be charged to prepaid insurance

Selling and Administrative expenses have a fixed and variable portion:
Fixed portion is paid in the month incurred	$29,000
Variable portion as a percentage of sales	2%
Variable S&A expenses are paid one month after the month incurred

Depreciation expense per month	$5,000

The annual interest rate on the long term debt is	3.5%
Interest is incurred on the principal balance outstanding each month.
Interest is paid on a quarterly basis. Interest for December to February will be paid March 1.
No principal payments are scheduled to be made on the long-term debt until September of 2017

Income Tax rate	30%
Accrued taxes are paid on the 15th of January, April, July and October

The Company's Board of Directors plans to declare a dividend on January 20	$12,000
It will be paid on February 15.

Answer:

A relatively new company, Wine To End Whining, Inc., has determined they need to engage in a budgeting process as part of their new strategic plan. The Company has asked you to provide the following items for the months of January, February, and March of 2017: A) a Purchases Budget; B) a Cash Budget; C) a Budgeted Income Statement; and D) a Budgeted Balance Sheet. They have provided you with the planning document below and also, with their December 31, 2016 Balance Sheet. Please complete the four items requested on Worksheet Tabs A, B, C, and D of this Workbook. Check Figures are provided for you on each Worksheet.







WINE TO END WHINING, INC.
PLANNING DATA FOR 2017

All Sales are on Credit
Collections of Accounts Receivable:
Month of Service	56%
Month following Service	44%

Actual December 2016 Sales	$ 2,00,000
Expected Sales in Dollars
January	$ 2,20,000
February	$ 1,93,000
March	$ 1,78,000
April	$ 2,01,000

Cost of Goods Sold as a percentage of selling price.	60%

Planned ending inventory as a percentage of next month's required inventory.	65%

Purchases are are all on credit.
Purchases paid in current month	30%
Purchases paid in next month	70%


Sales commission as a percent of sales	3%
Sales commission are paid one month after the month incurred.

Advertising expenses have a fixed and variable portion:
Fixed portion	$4,200
The fixed portion of the advertising is paid in the current month.
Variable portion as a percentage of sales	1%
The variable portion is paid one month after the month incurred.

Insurance policy:
Months of insurance coverage paid for	12
The policy period is from February 1 to January 31 each year
The premium to be paid on February 1, 2017 is	$18,000
The premium will be charged to prepaid insurance

Selling and Administrative expenses have a fixed and variable portion:
Fixed portion is paid in the month incurred	$29,000
Variable portion as a percentage of sales	2%
Variable S&A expenses are paid one month after the month incurred

Depreciation expense per month	$5,000

The annual interest rate on the long term debt is	3.5%
Interest is incurred on the principal balance outstanding each month.
Interest is paid on a quarterly basis. Interest for December to February will be paid March 1.
No principal payments are scheduled to be made on the long-term debt until September of 2017

Income Tax rate	30%
Accrued taxes are paid on the 15th of January, April, July and October

The Company's Board of Directors plans to declare a dividend on January 20	$12,000
It will be paid on February 15.

Use the information provided on the December 31, 2016 Balance Sheet shown below to help you create the budgeting documents requested.


WINE TO END WHINING, INC.
BALANCE SHEET
December 31, 2016

ASSETS
Current Assets
Cash	$ 1,03,200
Accounts Receivable	88,000
Inventory	85,800
Prepaid Insurance	1,500
Total Current Assets	2,78,500

Property Plant and Equipment
Office Equipment	3,00,000
Accumulated Depreciation	(60,000)
Total Property Plant and Equipment	2,40,000

Total Assets	$ 5,18,500


LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES
Current Liabilities
Accounts Payable - Purchases	$ 89,460
Sales Commission Payable	6,000
Selling and Admin Payable	4,000
Advertising Payable	2,000
Interest Payable	467
Dividends Payable	-
Income Taxes Payable	14,970
Total Current Liabilities	1,16,897

Long Term Debt	1,60,000

Total Liabilities	2,76,897

SHAREHOLDERS' EQUITY
Common Stock	1,24,000
Retained Earnings	1,17,603

Total Shareholders' Equity	2,41,603

Total Liabilities and Shareholders Equity	$ 5,18,500



Based on the information available to you, complete the Purchases Budget worksheet below:
Check figures are: January Budgeted Purchase for Next Month Sales = $121,470; March Inventory Needed to be Available during Current Month = $185,190.


WINE TO END WHINING, INC.
PURCHASES BUDGET
PLANNING FOR 2017

Solution:	Actual		Budgeted		Budgeted		Budgeted
	Dec 2016		January		February		March
Desired Ending Inventory Balance for Current Month	$ 85,800		$ 75,270		$ 69,420		$ 78,390
Current Month's Cost of Sales	1,20,000		1,32,000		1,15,800		1,06,800
Inventory Needed to be Available during Current Month	2,05,800	-	2,07,270	-	1,85,220	-	1,85,190
Less: Beginning Inventory of Current Month	78,000		85,800		75,270		69,420
Budgeted Purchase for Next Month Sales	$ 1,27,800	$ -	$ 1,21,470	$ -	$ 1,09,950	$ -	$ 1,15,770



Based on the information available to you, complete the Cash Budget worksheet below:
Check figures are: January Cash Receipts = $211,200; February Cash Disbursements = $194,414; March Ending Cash Balance = $165,519.


Solution:
WINE TO END WHINING, INC.
PLANNED CASH TRANSACTIONS and CASH BUDGET
For the Month Ending,

	Jan 31, 2017		Feb 28, 2017		Mar 31, 2017
CASH IN
56% This Month's Sales	$ 1,23,200		$ 1,08,080		$ 99,680
44% of Last Month's Sales	88,000		96,800		84,920

Total Cash Receipts	$ 2,11,200	$ -	$ 2,04,880	$ -	$ 1,84,600

CASH OUT
70% Last Month's Purchases	89,460		85,029		76,965
30% This Month's Purchases	36,441	-	32,985	-	34,731
Commissions	6,000		6,600		5,790
Advertising	$6,200		6,400		6,130
Selling & Admin.	$33,000		33,400		32,860
Insurance			18,000
Interest					1,400
Dividends			12,000
Income Tax	14,970

Total Cash Disbursements	$ 1,86,071	$ -	$ 1,94,414	$ -	$ 1,57,876

CASH BUDGET
Beginning Balance of Cash	$ 1,03,200		$ 1,28,329		$ 1,38,795

Cash Receipts	2,11,200		2,04,880	-	1,84,600

Cash Available	3,14,400		3,33,209	-	3,23,395

Cash Disbursements	1,86,071		1,94,414	-	1,57,876

Ending Cash Balance	$ 1,28,329		$ 1,38,795	$ -	$ 1,65,519



Based on the information available to you, complete the Budgeted Income Statement worksheet below:

Check figures are: January Budgeted Gross Margin = $88,000; February Budgeted Operating Income = $25,920; March Budgeted Net Income = $14,247.


Solution:
WINE TO END WHINING, INC.
BUDGETED INCOME STATEMENTS
For the Month Ending,

		Jan 31, 2017		Feb 28,2017		Mar 31, 2017
Sales		$ 2,20,000		$ 1,93,000		$ 1,78,000
Cost of Sales		1,32,000		1,15,800		1,06,800
Gross Margin		88,000		77,200	-	71,200

Other Operating Expenses
Commission Expense		6,600		5,790		5,340
Advertising Expense		6,400		6,130		5,980
Insurance Expense		1,500		1,500		1,500
Selling & Admin. Expense		33,400		32,860		32,560
Depreciation Expense		5,000		5,000		5,000
Total Other Operating Expenses		52,900		51,280	-	50,380

Operating Income		35,100		25,920	-	20,820

Other Income (Expense)
Interest Expense		467		467		467

Income Before Income Tax		34,633		25,453	-	20,353

Income Tax Expense		10,390		7,636		6,106

Net Income		$ 24,243		$ 17,817		$ 14,247


Based on the information available to you, complete the Budgeted Balance Sheet worksheet below:
Check figures are: January Total Assets = $535,399; February Total Liabilities = $267,971; March Total Current Assets = $337,229.


Solution:
WINE TO END WHINING, INC.
BUDGETED BALANCE SHEETS

ASSETS
			Dec 31, 2016		Jan 31, 2017		Feb 28,2017		Mar 31, 2017
Current Assets
	Cash		$ 1,03,200		$ 1,28,329		$ 1,38,795		$ 1,65,519
	Accounts Receivable		88,000		96,800		84,920		78,320
	Inventory		85,800		75,270		69,420		78,390
	Prepaid Insurance		1,500		-		16,500		15,000

Total Current Assets			2,78,500		3,00,399	-	3,09,635	-	3,37,229

Property Plant and Equipment
	Office Equipment		3,00,000		3,00,000		3,00,000		3,00,000
	Accumulated Depreciation		(60,000)		(65,000)		(70,000)	(5,000)	(75,000)
Total Property Plant and Equipment			2,40,000		2,35,000		2,30,000	(5,000)	2,25,000

Total Assets			$ 5,18,500		$ 5,35,399	$ -	$ 5,39,635	$ (5,000)	$ 5,62,229

LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES
Current Liabilities
	Accounts Payable - Purchases		$ 89,460		85,029		76,965	-	81,039
	Sales Commission Payable		6,000		6,600		5,790	-	5,340
	Selling and Admin Payable		4,000		4,400		3,860	-	3,560
	Advertising Payable		2,000		2,200		1,930	-	1,780
	Interest Payable		467		934		1,400		467
	Dividends Payable		-		12,000		-		-
	Income Taxes Payable		14,970		10,390		18,026		24,132

Total Current Liabilities			1,16,897		1,21,553	-	1,07,971	-	1,16,318

Long Term Debt			1,60,000		1,60,000		1,60,000	-	1,60,000

Total Liabilities			2,76,897		2,81,553	-	2,67,971	-	2,76,318

SHAREHOLDERS' EQUITY
	Common Stock		1,24,000		1,24,000		1,24,000	-	1,24,000
	Retained Earnings		1,17,603		1,29,846		1,47,664		1,61,911

Total Shareholders' Equity			2,41,603		2,53,846	-	2,71,664	-	2,85,911

Total Liabilities and Shareholders Equity			$ 5,18,500		$ 5,35,399	$ -	$ 5,39,635	$ -	$ 5,62,229

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