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.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?

Answer 1

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