BUAD 195 Budget Project Fall 2020

You were recently hired by LW’s Bottle Emporium Ltd. (“LW”) as financial controller. LW sells a high-end set of
baby bottles including various sizes to meet the child’s needs throughout their early years. One of your first tasks
is to prepare the master budget for the fourth quarter of 2020. To assist you in the preparation of the budget, and
supporting schedules, you have been provided with the following information:

1. As of September 30, 2020 LW had the following balance sheet:

LW’s Bottle Emporium Ltd.

Balance Sheet
September 30, 2020

Cash $ 10,000 Accounts payable $ 100,640

Accounts receivable 371,250 Taxes payable 15,000
Inventory 133,200 Total current liabilities 115,640
Prepaid insurance 10,000 Long-term loan payable 250,000
Total current assets 524,450 Total liabilities 365,640
Property, plant and equipment 1,125,000 Common shares 50,000
Accumulated amortization 454,000 Retained earnings 779,810
Net property, plant and equipment 671,000 Total shareholders equity 829,810
Total assets $ 1,195,450 Total liabilities and equity $ 1,195,450

2. LW sells the bottle sets for $275 each. Recent and forecasted sales (in units) are as follows:

July (actual) 1,000

August (actual) 1,150
September (actual) 1,600
October 1,200
November 2,150
December 2,400
January 900
February 850
BUAD 195 Budget Project Fall 2020

3. Management has a policy of having enough bottle sets on hand at the end of each month to cover 60% of
the next months projected sales. At the end of September, the company had 720 bottle sets in inventory.
Each bottle set costs the company $185. Inventory purchases are paid 60% in the month of purchase and
40% the following month.

4. All sales are on credit with 30% of receivables being collected in the month of sale, 50% collected the
month after sale and the final 20% collected two months after sale.

5. Fixed operating costs are expected to be $42,000 every month. Out of this amount, $1,000 is expensing
of prepaid insurance (insurance is paid once a year on August 1 st) and $12,000 is depreciation. The
company also expects variable operating costs to be $17 per bottle set sold.

6. Management plans to purchase a new delivery truck in October at a cost of $54,000. The company will
pay cash.

7. A dividend of $11,000 will be declared and paid in December.

8. Interest is paid monthly on the long-term loan at a rate of 6% per year. The full principal amount will be
repaid on September 30th, 2026.

9. Income tax expense is calculated as 28% of the earnings before taxes. The company pays income tax
installments of $10,000 per month.

10. The company must maintain a minimum cash balance of $9,000. A short-term loan is available to cover
any shortfall. Interest is paid monthly on the previous month’s loan balance at a rate of 7% per annum.
Any cash above $9,000 at month end will be used to reduce any existing short-term loan.
BUAD 195 Budget Project Fall 2020

Required:

Use a spreadsheet application such as Excel to complete this assignment. Each student is to create
his/her own Excel file (from a blank Excel – I will be checking the file properties), and complete the
assignment individually. Use formulas wherever possible – you will thank yourself! Your spreadsheet
should be formatted to show amounts to the nearest dollar (no cents). Your instructor will tell you exactly
what to submit and when, and will inform you as to penalties for late submission.
The items in the budget should appear in the following order:
1. The balance sheet for September 30, 2020 (as given).
2. A cash receipts schedule for October, November and December.
Check figure: Cash receipts for October should be $382,250.
3. A purchases schedule in units for October, November and December.
Check figure: October purchases should be 1,770 units.
4. A cash payments for purchases for October, November and December.
Check figure: October cash payment for purchases should be $297,110.
5. A cash payments schedule for October, November and December.
Check figure: October’s total cash payments should be $411,760.
6. A cash budget for October, November and December, including a calculation of cumulative loan
at the bottom.
Check figure At the end of October the cash balance should be $9,000 and the cumulative loan
should be $28,510.
7. The pro-forma income statements for October, November and December. You should also have
a total column which totals all three months.
i. Subtotals for EBIT and EBT should be included.
ii. List all expenses separately (do not combine).
iii. Show long-term and short-term interest separately.
iv. Hint: Cost of goods sold is not the same thing as purchases.
Check figure: October earnings after taxes should be $31,932.
8. A pro-forma retained earnings schedule for the quarter ended December 31st.
Check figure: Ending retained earnings should be $977,232.
9. A pro-forma balance sheet at December 31st. Hint: Consider what will cause balances to change
from the September 30, 2020 balance sheet. Some items will change even though a cash
payment didn’t occur.
Check figure: Total assets should be $1,454,286.
BUAD 195 Budget Project Fall 2020

Other information:

Format:
 For numbers, use the Accounting format with zero decimal places.
 If your ending balance sheet is out by $1 or $2, do not worry about it, it’s just rounding error.
 Marks will be awarded for a neat, well laid out and formatted spreadsheet. It should be easy to
follow and have a good flow to it.
 Schedules should flow down a worksheet, not side by side. So, the opening balance sheet would
be at the top, the cash receipts schedule below it.
 Lines should be included to show where calculations occur, with double lines at the bottom of
each schedule. See the balance sheet on the previous page.
 Dollar signs should be used only at the top and bottom of columns in a schedule, not on every
number.
Formulas: Many of the numbers in the schedules, most of the numbers in the income statement, and all
of the numbers in the retained earnings statement and the closing balance sheet should be the result of
formulas or called cells. For the pro-forma balance sheet, some of the formulas will start with a reference
to the opening balance sheet. For example, taxes payable will be the opening amount from September
30, plus total tax expense, minus total tax instalments.
Cell referencing: Whenever possible, cell referencing must be used – you will not get the check figures
unless you use cell referencing whenever possible. An efficient schedule design allows you to make
changes in one area and have them update automatically in others.
Due Date: November 6th at 11:55 pm, to be uploaded through a Moodle drop-box. Late submissions will
not be accepted. The file should be named as FirstNameLastName, Buad 195, and budget e.g.
joshwidmann-buad195-budget.xlsx.

Plagiarism: Each person is to create his/her own Excel file and do this assignment individually. You can
help each other with formulas, checking numbers, etc., but no copying.

Assistance from the Professor: Before the due date, if you need help, you can send me your file by email
(don’t upload on Moodle until final) and I’ll give you hints as to what is wrong. If you start early enough
and don’t give up, you should be able to get a perfect score! When sending in for hints before the due
date, the file should be named with your first and last name: e.g. joshwidmann-budgethelp.xlsx.
Remember, it could take me up to 24 hours to respond, or more on a weekend. I only guarantee that I
will answer emails received by midnight on November 5 th (24 hours before the due date) so if you choose
to complete the budget at the last minute, you may not receive any help.