In: Accounting
Transcript Company is preparing a cash budget for June. The company has $145,000 cash at the beginning of the month and anticipates having total sales of $1,222,000, consisting of 25% cash sales and 75% credit card sales. The bank charges 3 percent for credit card deposits. The firm sets its selling price at 150 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. Other cash disbursements are $66,000 per month, 4 percent of the total sales and the cash purchase of a new tractor for $125,000. In addition, a $545,000 note will be due this month for equipment purchased last year. Transcript Company has an agreement with its bank to maintain a cash balance of $125,000.
Required: What is the cash balance and what amount, if any, must the company borrow during June?
Cash Budget for the month of June | |||
Particulars | Amount in $ | ||
Cash at the beginning of the month | 1,45,000 | ||
Add: | |||
Cash Sales(25% of 12,22,000) | 3,05,500 | ||
Less: | |||
Cost of Purchases | 8,14,667 | ||
Other Cash Disbursements | |||
[66000+ (12,22,000*4%)] | 1,14,880 | ||
Cash Purchase of New tractor | 1,25,000 | ||
Amount for Equipment Purchased Last year | 5,45,000 | ||
Cash At the end as per above budget [a] | -11,49,047 | ||
Cash At the end (fixed) [b] | 1,25,000 | ||
Cash Shortage [a] - [b] | -12,74,047 | ||
Hence the amount to be borrowed at the end shall be 12,74,047 | |||
Working Notes | |||
1 | Total Sales | 12,22,000 | |
Cash Sales 25% | 3,05,500 | ||
Credit Sales 75% | 9,16,500 | ||
2 | Selling Price is set at 150% of Cost of Sales | ||
Cost of Purchases will be equal to Selling price divided by 150 % | |||
Hence | |||
Cost of Purchases | Selling Price/150% | ||
= | 12,22,000 | ||
150% | |||
= | 8,14,667 | ||
3 | Non Cash Items like Credit Card Charges & Credit sales are ignored. | ||