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

A) Loan outstanding balance in September

B) Interest payment in August

C) Preliminary Cash balance in September

D) Accounts payable for the next period (October)

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

F) If the answer to E) is yes, what will be the amount?

Answer 1

working notes

1. opening balance of july is 25000,which is the closing balance of june

2.cash sales are tken as 60% of sales figure given for respective month.for example july cash sales will be 60% of 200000= 120000

3.collection from debtors.for sales of 190000 in may, 60% will be collected in May, 30% in june, 5% of 190000 that is 9500 will be collected in july and balance 5% again 9500 will be collected in august

4. cash purchases are taken as 70% of respective months

5. payment for credit purchases: 30% of purchases are paid the next month .So 30% of june purchasesof 90000 ,that is 27000 will be paid in july

CASH BUDGET

particulars	july	aug	sept
opening balance(A)	25000	25000	25000
add: CASH RECEIPTS(B)
cash sales	120000	126000	114000
collection from debtors
collection for salesmade in may)	9500	9500
collection for salesmade in june	54000	9000	9000
collection for sales made in july		60000	10000
collection for sales made in august			63000
total cash receipts A + B	208500	229500	221000
less CASH PAYMENTS ( C)
Cash purchases	70000	73500	66500
payment for credit purchases	27000	30000	31500
direct lab (35% of purchases)	35000	36750	33250
selling exp (8% of sales)	16000	16800	15200
other fixed exp	7000	7000	7000
taxes			25000
dividend		20000
TOTAL PAYMENTS C	155000	184050	178450
closing balance (indicated) = A+B-C	53500	45450	42550
less closing balance required	25000	25000	25000
= balance available for loan repayment	28500	20450	17550
interest payment(1% of 100000 balance)	1000	725	528
principal repayment	27500	19725	17022

after repaying principal of 27500 , the outstanding balance on loan will be 100000-27500= 72500

interest payment inaugust will be 1% of 72500, which is 725

outstanding balance now will be 72500-19725= 52775

interest will be 1% of 52775=528

A)loan outstanding balance in september= 52775-17022= $35753

B)int payment in august is $725

C)preliminary cash balance in september is42550

D)accounts payable for october will be 30% of september purchases of 95000