Question

In: Finance

The Sun Pacific Company budgeted the following sales: July                  200,000 August             

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.Accounts payable for the next period (October)

2.If the company purchase a machine with a cost of $30,000 in September, doeswill the company need a loan?

3.If the answer to 2 is yes, what will be the amount?

Solutions

Expert Solution

Answer 1
Accounts payable for the next period (October) = Budgeted purchases for September * 30% = $95000 * 30% = $28,500
Answer 2 & 3
Cash Budget for July , August and September
July August September
Receipts
Sales Collection
Cash    $120,000.00 $126,000.00 $114,000.00
May sales collection $19,000.00
June Sales Collection $54,000.00 $18,000.00
July sales collection $60,000.00 $20,000.00
August sales Collection $63,000.00
Total Receipts $193,000.00 $204,000.00 $197,000.00
Payments
Cash Purchase $70,000.00 $73,500.00 $66,500.00
Credit purchase $27,000.00 $30,000.00 $31,500.00
Direct Labour $35,000.00 $36,750.00 $33,250.00
Selling Expenses $16,000.00 $16,800.00 $15,200.00
Other fixed expenses $7,000.00 $7,000.00 $7,000.00
Taxes $25,000.00
Dividend $20,000.00
Interest on loan $1,000.00 $630.00 $436.80
Purchase of machine $30,000.00
Total Payments $156,000.00 $184,680.00 $208,886.80
Cash Surplus $37,000.00 $19,320.00 -$11,886.80
Add : Beginning Cash balance $25,000.00 $25,000.00 $25,000.00
Total Cash Available $62,000.00 $44,320.00 $13,113.20
Less : Loan repayment $37,000.00 $19,320.00 $0.00
Add : Loan taken $0.00 $0.00 $11,886.80
Ending Cash balance $25,000.00 $25,000.00 $25,000.00
Yes , the company need a loan to purchase a machine in september.
Amount of Loan = $11,886.80

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