| June 9, 2016



Summer 2015 –


Objective: To understand and apply the basic concepts of profit planning.

Due date: At the end of class 13

Late submissions will be penalized 15 pointsand will be accepted no later than class 15

Grading: This project is worth 40 points.

Required: You need to prepare a comprehensive 6-month budget, including supporting schedules and a report for the period January 1, 2010 to June 30, 2010 for Henron, Inc (a fictional company). This project must include:

SalesForecast and Budget……….
Cash Receiptsbudget…………….
Purchase budget……………………
Cash Purchases Disbursements budget…..
Operating Expense budget……
Summary Cash budget…………
Budgeted Income Statement…..
Budgeted Balance Sheet…………
Notes and Hints
1. All 8 parts must be submitted before I grade the project.

2. The schedules/budgets must be prepared on Excel. The templates I have prepared must be used as is.

3. Part of this project is demonstrating proper use of Excel. You may only input a “hard number” into a pink cell. All yellow cells must be formula based (no numbers included – use appropriate cell referencing).

4. I recommend constructing the formulas for one month and then copying the formulas over to the remaining months.

5. Rounding is encouraged and you may ignore interest and taxes.

The budget templates and this instruction sheet are located on the course materials page. Make sure you save the file to excel and then open the file through Excel (not Internet Explorer).
Check figures are also located on the course materials page.

1. Heron, Inc. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for Heron, so Heron has no manufacturing-related costs.

2. As of 11/09, each lawn chair costs Heron $4 per unit. Henron sells each chair for $10 per unit.

3. The estimated sales (in units) are as follows:

Nov 09


Dec 09


Jan 10


Feb 10


Mar 10


Apr 10


May 10


June 10


July 10


4. Per an existing contract, the cost of each chair is scheduled to increase by 5% on March 1, 2010. In addition, because of increasing costs of plastic webbing, the cost is anticipated to increase by an additional 5% on May 1, 2010. To offset these increases, the company plans to raise the sales price to $11.25 per unit beginning May 1, 2010. The sales forecast (i.e., estimated sales in units) takes this price increase into account.

5. Thirty percent of any month’s sales are for cash, and the remaining 70% are on credit. Thirty percent of the credit sales are collected in the month of sale, 50% are collected in the following month, and 16% are collected in the second month after the sale. The remaining receivables are deemed uncollectible. Bad debts are written off in the month the debt is deemed uncollectible (e.g. if the sale is made in January and is not collected by the end of March, it is written off in March.) No accrual for estimated bad debts is made in the month of sale.

6. The firm’s policy regarding inventory is to stock (i.e. have in ending inventory) 40% of the forecasted demand in units (i.e., estimated sales) for the next month. Heron uses the first-in, first-out (FIFO) method in accounting for inventories.

7. Forty percent of the inventory purchases are paid for in the month of purchase and the remaining 60% are paid in the following month (i.e. all of the previous month’s Accounts Payable are paid off by the end of any month.)

8. Per a prior contract, a cash payment of $50,000 for equipment previously purchased is due in January. Another payment of $30,000 is due in February. Depreciation on the equipment previously purchased is included in the overhead cost detailed in item 11 below. Also, dividends of $12,000 are to be paid in March.

9. Monthly operating expenses consist of the following (if these are cash expenses, they are paid when incurred):

Salaries and Wages


Sales Commissions

7% of sales revenue



Other Variable Cash Expenses

6% of sales revenue

Supplies Expense: See note


Other: See note


Note: Other general and administrative overhead is expected to be $48,000 per month. Of this amount, $24,000 represents depreciation and other non-cash expenses. The company maintains on hand one month’s worth of supplies.

10. The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. Ignore interest on the loan in your calculations, but minimize the amount borrowed and pay off any loans as soon as possible.

11. Cash on hand as of December 31, 2009 is expected to be $15,000. In addition, there will be no notes payable as of this date.

12. See below the other Balance Sheet accounts with their expected balances as of December 31, 2009:

· Supplies……………………………………….$ 2,000

· Property, Plant and Equipment………..1,050,000

· Accumulated Depreciation…………….. 526,475

· Common Stock…………………………….. 200,000

· Retained Earnings………………………… 322,811

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