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In: Accounting

Bravo Pty Ltd (Bravo) sells educational stationery for students. Estimated sales for the second half of...

Bravo Pty Ltd (Bravo) sells educational stationery for students. Estimated sales for the second half of the coming year are: Month Sales in units July 10,000 August 11,400 Sept 12,000 Oct 15,600 Nov 18,000 Dec 22,000 Each unit sells for $35 and the actual revenue for May and June were $355,000 and $325,000, respectively. 30% of any month’s sales are for cash with the remaining sales on credit. 20% of the credit sales are collected in the month of sale, 70% are collected in the following month and 8% are collected in the second month after the sale. The remaining credit sales are never collected and are considered bad. Purchase and inventory information Bravo likes to have 25% of the forecasted demand for the next month in closing stock and it pays for 75% of their stock in the month of purchase and the remainder in the following month. The units cost $22 each. Other information Non-manufacturing costs which are generally paid in the month incurred consist of: Salaries $7,000/month Commissions 5% of sales revenue Rent $14,000/month Depreciation $2,500/month There is a scheduled dividend payment of $100,000 and $60,000 in July and Sept respectively. Bravo also needs to make a payment of $80,000 in August for equipment previously purchased on credit in May. Bravo maintains a minimum cash balance of $15,000 with a line of credit available to fund any shortfalls. For simplicity, assume that the bank will only lend and accept repayments in $1,000 increments (e.g., if $123,456 is needed, the bank will only lend and accept repayment of $124,000) and that months, rather than days are used for interest calculations. Interest is charged at 10% on all outstanding borrowings and this is charged and paid in the following month based on the prior month’s closing balance. The tax rate is 30% and there are tax payments due in July of $8,000 and $19,000 in Sept. 30 June Balances Closing stock 2,500 units at a cost of $22.50/unit Cash at bank $26,000 Accounts Payable $280,000 Line of credit balance $50,000 Page 2 of 2 Required: Marks Prepare a cash budget for the months of July and August.

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Assumption: $80,000 in August for equipment previously purchased on credit in May - this 80,000 is assumed to be included in Accounts Payable of $280,000. So 80,000 is for equipment payment and rest 200,000 is assumed to be for purchases of inventory


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