Question

The Fraley Company, a merchandising firm, has planned the following sales for the next four months:

		March	April	May	June
	Total budgeted sales......	$50,500	$71,450	$93,600	$67,000

All sales at Fraley are on credit. From experience, the company has learned that a month’s sales on account are collected according to the following pattern:

	Month of sale.......................................................	68%
	First month following month of sale.................	29%
	Uncollectible........................................................	3%

      The company requires a minimum cash balance of $5,000 to start a month.

      Required:

a.    Compute the budgeted cash receipts for June. (4 Points)

b.    Assume the following budgeted data for June:

	Purchases...............................................................................	$ 52,000
	Selling & administrative expenses (this number includes depreciation)……………………………………………..	$ 18,000
	Depreciation...........................................................................	$   8,000
	Equipment purchases...........................................................	$ 15,000
	Cash balance, beginning of June...................................	$   6,720

   Using this data, along with your answer to part (a) above, prepare a cash budget in good form for June. Clearly show any borrowing needed during the month. The company can borrow in any dollar amount, but will not pay any interest until the following month. (6 points)

Answer 1

a) Computation of budgeted cash receipt for the month of June:
Budgeted sale in June	67,000
Uncollectible @ 3%	2,010
Collectible sale	64,990
Received in the month of sale @ 68%	45,560	(A)
Sale in May	93,600
May sales received in the month of June @ 29%	27,144	(B)
Budgeted Cash receipt for June	72,704	(A+B)
b) Cash budget for the month of June:
Opening cash balance in June	6,720	(A)
Cash Receipt in June (as calculated above)	72,704	(B)
Cash payments
Purchases	52,000
Selling and administrative expenses	10,000
(excluding depreciation of $8,000)
Equipment purchase	15,000
Total Cash payments	77,000	(C )
Closing cash in June	2,424	(A+B-C)
Minimum cash required	5,000
Borrowings required	2,576	(Minimum cash - Closing cash)