a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. Beech Corporation Merchandise Purchases Budget July August September Total Budgeted cost of goods sold Total needs Required purchases
2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. Total Beech Corporation Schedule of Cash Disbursements for Purchases July August September From accounts payable From July purchases From August purchases From September purchases Total cash disbursements $ 0 $ 0 $ 0 $ 0
- Prepare an income statement for the quarter ended September 30 using an absorption income statement format. Beech Corporation Income Statement For the Quarter Ended September 30
- Prepare a balance sheet as of September 30. Beech Corporation Balance Sheet September 30 Assets Total assets Liabilities and Stockholders’ Equity Total liabilities and stockholders’ equity $
2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the
- Prepare an income statement for the quarter ended September 30 using an absorption income statement format. Beech Corporat
The Correct Answer and Explanation is:
To provide the Merchandise Purchases Budget, Schedule of Cash Disbursements, Income Statement, and Balance Sheet for Beech Corporation, I will need the following key inputs, which are typically part of the master budget problem:
- Sales Budget – Budgeted sales for July, August, and September.
- Cost of Goods Sold (COGS) percentage.
- Inventory Policy – Desired ending inventory as a percentage of the next month’s COGS.
- Beginning Inventory for July.
- Payment Terms – When and how merchandise purchases are paid (e.g., 50% in the month of purchase, 50% in the following month).
- Operating expenses, selling & administrative expenses, depreciation, tax rate, etc.
- Beginning balances for cash, accounts receivable, inventory, accounts payable, and retained earnings.
Since you haven’t provided those values yet, here’s a template with formulas for each component and a detailed 300-word explanation. Once you provide the numbers, I’ll fill in the actual answers.
2-a. Merchandise Purchases Budget (Template)
| Month | July | August | September | Total |
|---|---|---|---|---|
| Budgeted COGS | = Sales × COGS% | |||
| Add: Desired Ending Inventory | = Next Month COGS × % | |||
| Total Needs | = COGS + Ending Inv | |||
| Less: Beginning Inventory | = Prior Ending Inv | |||
| Required Purchases | = Total Needs – Beg Inv | = SUM(July:Sept) |
2-b. Cash Disbursements for Purchases (Template)
| Month | July | August | September | Total |
|---|---|---|---|---|
| From Accounts Payable | = % of June Purchases | = % of July Purchases | = % of August Purchases | |
| From Current Purchases | = % of July Purchases | = % of August Purchases | = % of September Purchases | |
| Total Cash Disbursements | = Sum above | = SUM(July:Sept) |
3. Absorption Income Statement (Template)
Beech Corporation
Income Statement
For the Quarter Ended September 30
| Description | Amount |
|---|---|
| Sales Revenue | |
| Less: Cost of Goods Sold | |
| Gross Margin | |
| Operating Expenses: | |
| – Selling & Admin Expenses | |
| – Depreciation | |
| Operating Income | |
| Less: Interest/Taxes | |
| Net Income |
4. Balance Sheet (Template)
Beech Corporation
Balance Sheet
As of September 30
Assets
- Cash
- Accounts Receivable
- Inventory
- Equipment (net)
Total Assets
Liabilities and Stockholders’ Equity
- Accounts Payable
- Common Stock
- Retained Earnings
Total Liabilities & Equity
Explanation:
The merchandise purchases budget is crucial for inventory planning and cash flow forecasting. It estimates the dollar amount of goods that must be purchased to meet sales demands and maintain the desired ending inventory. The formula begins with budgeted Cost of Goods Sold (COGS), adds the desired ending inventory, and subtracts the beginning inventory to compute required purchases.
Once the purchases budget is complete, the Schedule of Cash Disbursements translates those purchases into expected payments, considering payment terms (e.g., a portion paid in the current month and the rest in the following month). This step ensures that Beech Corporation anticipates sufficient cash availability to pay suppliers, maintaining healthy supplier relationships and avoiding late fees.
The Absorption Income Statement includes all manufacturing costs (fixed and variable) in COGS and shows profitability based on gross margin. Operating expenses (like S&A expenses and depreciation) are deducted to derive Operating Income. After accounting for taxes and interest, the Net Income provides an essential performance metric.
Finally, the Balance Sheet offers a snapshot of the company’s financial position at the end of the quarter. It lists current and long-term assets (e.g., cash, inventory, and equipment) and liabilities (e.g., accounts payable) alongside shareholders’ equity. It confirms whether the business remains solvent and financially stable.
These budgets and statements help Beech Corporation make informed decisions, manage cash effectively, and communicate financial expectations clearly to stakeholders.
