Question

The Sun Pacific Company budgeted the following sales:

July                  200,000

August                        210,000

September       190,000

Sales in May were 190,000 and in June 180,000. 60% of sales are cash, 30% of sales are to be collected the next month, and the remaining 10% in 2 months.

Budgeted purchases of the required materials for production are:

July                  100,000

August                        105,000

September       95,000

Purchases in June were 90,000. 70% of purchases are cash and 30% should be paid the next month.

Direct Labor is 35% of purchases

Selling Expenses are 8% of sales

Other Fixed Expenses are $7,000 monthly

Taxes of $25,000 will be paid in September

Dividends of $20,000 will be paid in August

Sun Pacific has a loan with $100,000 outstanding balance in June

Interest expenses are 1% of the last month outstanding balance

The firm cash policy is to maintain a $25,000 ending cash balance (the ending balance in June was $25,000). Excess should be used to repay loans.

REQUIRED CALCULATE

1.Cash Sales in August

2.Cash receipts in July

3.Cash receipts in September

4.Cash payments in August

5.Cash payments in September

6.Loan outstanding balance in September

7.Interest payment in August

8.Preliminary Cash balance in September

9.Accounts payable for the next period (October)

10.If the company purchase a machine with a cost of $30,000 in September, does the company will need a loan

11.If the answer to 10 is yes, what will be the amount?

Answer 1

Part 1

Cash sales is 60% of total sales.

Cash sales in August = Sales in August x 60%

                                      = $210,000 x 60%

                                      = $126,000

Part 2

We have 60% of the sales in cash, 30% is collected in next month and 10% is collected in 2 months.

Cash receipts in July = 30% x June Sales + 10% x May Sales + July sales x 60%

                                        =30% x $180,000 + 10% x $190,000 + 60% x 200,000

                                        = $54,000 + $19,000 + $120,000

                                        = $193,000

Part 3

We have 60% of the sales in cash, 30% is collected in next month and 10% is collected in 2 months.

Cash receipts in July = 30% x August Sales + 10% x July Sales + September sales x 60%

                                     = 30% x 210,000 + 10% x 200,000 + 190000 x 60%

                                     =63000 + 20000 +114000

                                     = $197,000

Part 4

70% of the purchases are in cash and rest 30% is paid in the next month.

Cash payment in August = Purchases in August x 70% + purchases in July x 30%

                                             = $105,000 x .70 + 100,000 x .30

                                             = 73500 +30000

                                             = $103,500