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.
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