Question

December of the previous year 50,000, January70,000, February 100,000, March60,000, April100,000. Past experience shows that 45% of sales are collected in the month of the sale, and 55% in the month following the sale.

    2. Prepare a purchases budget for January through March, and the first quarter in total. Assume that the company only sells one product that can be purchased at $35.00 per unit. The market for this product is very competitive and customers highly value service such as quality and on time delivery of the product. Also assume that currently it is company policy that ending inventory should equal 45% of next month’s projected sales. All costs are paid in the current month except inventory purchases, which are paid in the month following the purchase (i.e. January purchases are paid in February).

3. Prepare a cash budget for January through March and for the first quarter in total. The company maintains a minimum cash balance of $70,000, and this was the balance in the cash account on January 1^st. Other expenses include $35,000 per month for rent, $24,000 per month for advertising, and $66,000 per month for depreciation. In addition, variable Selling & Administrative cost is $12 per unit sold, and the company paid a $20,000 dividend in February.

The company has an open line of credit with a bank and can borrow at an annual rate of 12%.
For simplification assume that all loans are made at the beginning of the month when borrowing is needed, and repayments are made at the end of a month if there is enough cash to make the payment. Also, interest associated with a loan is only paid at the time when that loan or a portion thereof is paid. Additionally, all loans and repayments (not the interest portion) can only be made in increments of $1000 and the company would like to pay its debts, or a portion thereof, as soon as it has enough cash to do so.

Budgeted unit sales	50,000	70,000	100,000	60,000	230,000	100,000
Selling price per unit	$50.00	$50.00	$50.00	$50.00	$50.00	$50.00
Total sales	$2,500,000	$3,500,000	$5,000,000	$3,000,000	$11,500,000	$5,000,000
		Scheduled of Expected Cash Collections
		January	February	March	Total
Beginning accounts receivable (December)	$750,000
January
February
March
Total cash collection

	December	January	February	March	Total
Budgeted unit Sales	50,000	70,000	100,000	60,000	230,000
Add desired ending merchandise inventory	35,000	45,000	27,000	45,000	117,000
Total needs		120,000	130,000	110,000	360,000
Less beginning merchandise inventory		31,500	45,000	27,000	103,500
Required purchases	-	88,500	85,000	83,000	256,500
Unit product cost	$        35.00	$               35.00	$               35.00	$               35.00	$               35.00
Cost of inventory purchases	$               -	$       3,097,500	$       2,975,000	$       2,905,000	$       8,977,500
	Budgeted cash disbursements for merchandise purchases:
	For the first quarter ended March 2020
	Quarter 1
		January	February	March	Total
Beginning accounts payable (December)
January purchases
February purchases
March purchases
Total cash disbursements for merchandise purchases		$                      -	$                      -	$                      -	$                      -

Beginning cash balance

add cash receipts

Cash collections from customers

Total cash available

Less cash disbursements

Total cash disbursements for merchandise purchases

Cash from Selling and administrative

Dividend

Total cash disbursements

Excess (deficiency) of cash available over disbursements

Financing

Borrowing (at the beginnings of the month)

Repayments (at end of the month)

Interest

Total financing

Ending cash balance

Answer 1

Sales Budget
Particulars			December	January	February	March	Quarter	April
Budgeted sales (in units)			50000	70000	100000	60000	230000	100000
Selling price per unit			$               50.00	$               50.00	$               50.00	$                 50.00	$                 50.00	$               50.00
Budgeted sales			$ 2,500,000.00	$ 3,500,000.00	$ 5,000,000.00	$    3,000,000.00	$ 11,500,000.00	$ 5,000,000.00

Schedule of expected cash collectuons
Particulars			January	February	March	Quarter
Budgeted sales			$ 3,500,000.00	$ 5,000,000.00	$ 3,000,000.00
Collection for :
December			$ 1,375,000.00			$    1,375,000.00
January			$ 1,575,000.00	$ 1,925,000.00		$    3,500,000.00
February				$ 2,250,000.00	$ 2,750,000.00	$    5,000,000.00
March					$ 1,350,000.00	$    1,350,000.00
Total Collections			$ 2,950,000.00	$ 4,175,000.00	$ 4,100,000.00	$ 11,225,000.00
Workings:
Collection on the month of January for:
December	($ 2500000 x 55%)		$ 1,375,000.00
January	($ 3500000 x 45%)		$ 1,575,000.00
			$ 2,950,000.00
Collection on the month of February for:
January	($ 3500000 x 55%)		$ 1,925,000.00
February	($ 5000000 x 45%)		$ 2,250,000.00
			$ 4,175,000.00
Collection on the month of March for:
February	($ 5000000 x 55%)		$ 2,750,000.00
March	($ 3000000 x 45%)		$ 1,350,000.00
			$ 4,100,000.00

	Merchandise Purchase Budget
	Particulars			December	January	February	March	Quarter	April
	Budgeted sales (in units)			50000	70000	100000	60000	230000	100000
Add:	Desired ending inventory			31500	45000	27000	45000	117000
	Total Needs			81500	115000	127000	105000	347000
Less:	Beginning inventory			22500	31500	45000	27000	103500
	Required purchase			59000	83500	82000	78000	243500
	Unit product cost			$               35.00	$               35.00	$               35.00	$               35.00	$            105.00
	Cost of inventory purchase			$ 2,065,000.00	$ 2,922,500.00	$ 2,870,000.00	$ 2,730,000.00	$ 8,522,500.00
	Schedule of expected cash disbursements for merchandise purchase
	Particulars			January	February	March	Quarter
	Payment for the month of:
	December			$ 2,065,000.00			$ 2,065,000.00
	January				$ 2,922,500.00		$ 2,922,500.00
	February					$ 2,870,000.00	$ 2,870,000.00
	Total payment			$ 2,065,000.00	$ 2,922,500.00	$ 2,870,000.00	$ 7,857,500.00

Cash Budget
						January	February	March
Beginning cash balance						$       70,000.00	$       70,000.00	$         70,000.00
add cash receipts
Cash collections from customers						$ 2,950,000.00	$ 4,175,000.00	$    4,100,000.00
Total cash available						$ 3,020,000.00	$ 4,245,000.00	$    4,170,000.00
Less cash disbursements
Total cash disbursements for merchandise purchases						$ 2,065,000.00	$ 2,922,500.00	$    2,870,000.00
Cash from Selling and administrative						$     840,000.00	$ 1,200,000.00	$       720,000.00
Dividend						$                     -	$       20,000.00	$                        -
Other expenses						$       59,000.00	$       59,000.00	$         59,000.00
Total cash disbursements						$ 2,964,000.00	$ 4,201,500.00	$    3,649,000.00
Excess (deficiency) of cash available over disbursements						$       56,000.00	$       43,500.00	$       521,000.00
Financing
Borrowing (at the beginnings of the month)						$       14,000.00	$       26,500.00
Repayments (at end of the month)						$                     -	$                     -	$        (40,500.00)
Interest						$                     -	$                     -	$             (545.00)
Total financing						$       14,000.00	$       26,500.00	$        (41,045.00)
Ending cash balance						$       70,000.00	$       70,000.00	$       479,955.00