Question

The Sun Pacific Company budgeted the following sales:

July                 210,000

August            220,000

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                 110,000

August            115,000

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 $30,000 will be paid in August

Sun Pacific has a loan with $120,000 outstanding balance in June

Interest expenses are 1% of the last month outstanding balance

The firm cash policy is to maintain a $35,000 ending cash balance (the ending balance in June was $35,000). Excess should be used to repay loans.

REQUIRED CALCULATE

1. Cash Sales in August

2. Cash receipts in July

3. Cash receipts in September

4. Cash payments in August

5. Cash payments in September

6. Loan outstanding balance in September

7. Interest payment in August

8. Preliminary Cash balance in September

9. Accounts payable for the next period (October)

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

11. If the answer to question #10 is yes, what will be the amount?

Answer 1

Solution:

Part 1 -- Cash Sales in August

Cash Sales in August = Total Budgeted Sales of August $220,000 * 60% of sales are cash = $132,000

Part 2 -- Cash receipts in July

Cash Receipts in July	July
Cash Sales in July (Total Sales 210,000*60%)	$126,000
30% of June Sales are collected in July (30%*$180,000)	$54,000
10% of May Sales are collected in July (10%*$190,000)	$19,000
Total Cash Receipts in July	$199,000

Part 3 --- Cash receipts in September

Cash Receipts in September	September
Cash Sales in September (Total Sales 190,000*60%)	$114,000
30% of August Sales are collected in September (30%*$220,000)	$66,000
10% of July Sales are collected in September (10%*$210,000)	$21,000
Total Cash Receipts in September	$201,000

Part 4 --- Cash payments in August

Cash Payments in August	August
Cash Purchases of August (115,000*70%)	$80,500
30% of July Purchases are paid in August (110,000*30%)	$33,000
Cash Payment for Expenses:
Direct Labor (35% of August Purchase 115,000)	$40,250
Selling Expense (8% of Sales 220,000)	$17,600
Other fixed monthly expenses	$7,000
Dividend Payment	$30,000
Total Cash Payments in August	$208,350

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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