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)Loan outstanding balance in September

2)Interest payment in August

3)Preliminary Cash balance in September

4)Accounts payable for the next period (October)

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

6)If the answer to 29 is yes, what will be the amount?

Answer 1

		Note:1-Cash receipts budget
				July	August	September
	Budgeted sales			210000	220000	190000
	Receipts
	Cash sales @ 60%			126000	132000	114000
	30% collected in the following month			54000	63000	66000
				(180000*30%)
	10% collected in 2 months			19000	18000	21000
				(190000*10%)	(180000*10%)
	Total cash receipts			199000	213000	201000
		Note:2-Cash payment for budgeted purchase
				July	August	September
	Budgeted purchase			110000	115000	95000
	Payment
	Cash payment @ 70%			77000	80500	66500
	30% in next month			27000	33000	34500
				(90000*0.30)
	Total cash payment			104000	113500	101000
		Cash Budget
				July	August	September
	Beginning cash balance			35000	35000	35000
	Add: Total cash receipts (Note:1)			199000	213000	201000
	Total cash available (A)			234000	248000	236000
	Cash payments for:
	Direct materials (Note:2)			104000	113500	101000
	Direct labor (35% of purchases)			38500	40250	33250
	Selling expense (8% of sales)			16800	17600	15200
	Other fixed expense			7000	7000	7000
	Taxes			0	0	25000
	Dividends			0	30000	0
	Interest expenses			1200	885	847
				(120000*1%)	(88500*1%)	(84735*1%)
	Total cash payments (B)			167500	209235	182297
	Preliminary cash balance (A)-(B)			66500	38765	53703
	Additional loan/(Loan repayment)			31500	3765	18703
	Ending cash balance			35000	35000	35000
		Loan balance
				July	August	September
	Beginning of month			120000	88500	84735
	Additional loan/(Loan repayment)			-31500	-3765	-18703
				(66500-35000)	(38765-35000)	(53703-35000)
	End of month			88500	84735	66032
1	Loan outstanding balance in september=$ 66032
2	Interest payment in August=$ 885
3	Prelimiary cah balance in september=$ 53703
4	Accounts payable for the next period=30% of september month purchase=95000*0.30=$ 28500
5	Yes
6	Preliminary cash balance for september				53703
	Less: Cost of machine				30000
	Revised Preliminary cash balance for september				23703
	Less: Minimum cash balance required				35000
	Amount to be borrowed				11297