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ACC 419 Case Study
You have just been hired as a new management trainee by Barb Weyer Corp. In the past, the
company has done very little in the way of budgeting and at certain times of the year has
experienced a shortage of cash.
Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the
upcoming first quarter in order to show management the benefits that can be gained from an
integrated budgeting program. To this end, you have worked with accounting and other areas to
gather the information assembled below.
Barb Weyer Corporation
Estimated Balance Sheet
December 31, 2014

Assets

Cash

$36,000

Accounts Receivable

525,000

Inventory

150,000

Total Current Assets

Equipment
Less accumulated depreciation
Equipment, net

Total Assets

$711,000

540,000
67,500
472,500

$1,183,500

Liabilities and Equity

Accounts payable

$360,000

Bank loan payable

15,000

Taxes payable (due 3/15/15)

90,000

Total liabilities

$465,000

Common Stock

472,500

Retained earnings

246,000

Total stockholders equity

718,500

Total liabilities and equity

$1,183,500

1.

2.

3.

4.
5.
6.

7.

Barb Weyer.'s single product is purchased for $30 per unit and resold for $45 per unit. The
expected inventory level of 5,000 units on December 31, 2014, is more than management's
desired level for 2015, which is 25% of the next month's expected sales (in units). Expected
sales are: January, 6,000 units; February, 8,000 units; March, 10,000 units; and April, 9,000
units.
Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the
credit sales, 60% is collected in the first month after the month of sale and 40% in the second
month after the month of sale. For the $525,000 accounts receivable balance at December 31,
2014, $315,000 is collected in January 2015 and the remaining $210,000 is collected in
February 2015.
Merchandise purchases are paid for as follows: 20% in the first month after the month of
purchase and 80% in the second month after the month of purchase. For the $360,000
accounts payable balance at December 31, 2014, $72,000 is paid in January 2015 and the
remaining $288,000 is paid in February 2015.
Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding
commissions) are $90,000 per year.
General and administrative salaries are $144,000 per year. Maintenance expense equals
$3,000 per month and is paid in cash.
Equipment reported in the December 31, 2014, balance sheet was purchased in January
2013. It is being depreciated over 8 years under the straight-line method with no salvage value.
The following amounts for new equipment purchases are planned in the coming quarter:
January, $72,000; February, $96,000; and March, $28,800. This equipment will be depreciated
using the straight-line method over 8 years with no salvage value. A full month's depreciation is
taken for the month in which equipment is purchased.
The company plans to acquire land at the end of March at a cost of $150,000, which will be
paid with cash on the last day of the month.

8.

Barb Weyer Corp. has a working arrangement with its bank to obtain additional loans as
needed. The interest rate is 12% per year, and interest is paid at each month-end based on the
beginning balance. Partial or full payments on these loans can be made on the last day of the
month. Isle has agreed to maintain a minimum ending cash balance of $36,000 in each month.
9.
The income tax rate for the company is 40%. Income taxes on the first quarter's income will
not be paid until April 15.
Required
Prepare a master budget for each of the first three months of 2015; include the following budgets
(show supporting calculations, and round amounts to the nearest dollar): (3 points each)
1.
1.
2.
3.
5.
6.
7.

Monthly sales budgets (showing both budgeted unit sales and dollar sales).
2. A schedule of expected cash collections from sales, by month and in total for the
quarter.
3. A merchandise purchases budget in units and in dollars. Show the budget by month
and in total for the quarter.
4. A schedule of expected cash disbursements for merchandise purchases, by month and
in total for the quarter.
Monthly selling and general and administrative expense budgets.
A cash budget. Show the budget by month and in total for the quarter. Determine any
borrowing that would be needed to maintain the minimum cash balance.
Budgeted income statement for the entire first quarter (not for each month).

Briefly describe budgeting benefits to top management and behavioral issues that may occur during
the process (padding the budget, etc.). (4 points)
Check (2) Budgeted purchases: January - $90,000, (3) Budgeted selling expenses: February $79,500, (6) Ending cash balance: February - $107,850.

Case Assignment Instruction Sheet

Notes:

1.

Name

Provide a cover sheet with the following information:

XYZ Student

Walsh Email Address

XYZ@

Course

ACC 419

Instructor

Assignment Title

Case

Due Date

Week 9 (3/3/15 or 3/5/15)

Page # of #

Page 1 of N

2.

On additional pages, indicate Name and Page # of #.

3.

Do not use a separate cover sheet, folder or binder.

4.

Staple the pages together.

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