Question

ABC Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

▪ Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January.

▪ Collections are expected to be 85% in the month of sale and 15% in the month following the sale.

▪ The cost of goods sold is 60% of sales.

▪ The company desires an ending merchandise inventory equal to 80% of the cost of goods sold in the following month.

▪ Payment for merchandise is made in the month following the purchase.

▪ Other monthly expenses to be paid in cash are $21,200.

▪ Monthly depreciation is $21,000

Management would lke to maintain a minimum cash balance of $4000 eaxh month. they have an agreement eitb the bank that allows the company to borrow in increments of $1000 at the befinning of esch month up to total loan of 20,000. the interest rate is 1% per month and we assume interest not componded. the company would repay the loan plus axcumulated interest at the end of the quarter

Balance Sheet

October 31

Assets Cash $22,000

Accounts receivable 83,000

Merchandise inventory 158,400

Property, plant and equipment

(net of $594,000 accumulated depreciation) 1,004,000

Total assets $1,267,400

Liabilities and Stockholders' Equity Accounts payable $196,000

Common stock 620,000

Retained earnings 451,400

Total liabilities and stockholders' equity $1,267,40

Prepare cash buget for November and Decembee

Answer 1

Solution

Sales Budget
	November	December
Sales	330000	300000
Schedule of Expected Cash Collections
	November	December
Cash Sales	280,500	255,000
Credit Sales	83,000	49,500 (330000*15/100)
Total Cash Collections	3,63,500	304,500
Merchandise Purchases Budget
	November	December
Budget Cost of Goods Sold	198,000 (330,000/100*60)	180,000 (300,000/100*60)
Add Desired Ending Inventory	144,000 (180,000*80%)	153,600 (320,000/100*60 = 192,000) 192,000*80/100 = 153,600
Total Needs	342,000	3,33,600
Less Beginning Inventory	158,400	151,200 (300,000/100*63 = 189,000 189,000 * 80% = 151,200
Required Purchases	183,600	182,400
Schedule of Expected Cash Disbursements
	November	December
October purchases	1,96,000
November purchases		183,600
December purchases
Total Cash Disbursement for Purchases	1,96,000	183,600

Schedule of Expected Cash Disbursements
	November	December
October purchases	1,96,000
November purchases		183,600
December Purchases
Total Cash Disbursement for Purchases	1,96,000	183,600
Cash Budget
	November	December
Cash Balance Beginning	22,000	1,68,300
Add Cash Collections	3,63,500	304,500
Total Cash Available	3,85,500	4,72,800
Less Cash Disburtments:
Inventory Purchases	1,96,000	183,600
Expenses	21,200	21,200
Total Cash Disbursement	2,17,200	204,800
Excess (deficiency) of cash	1,68,300	2,68,000
Financing:
Borrowings
Repayments
Interest
Total Financing	0
Cash Balance, Ending	1,68,300	2,68,000

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