Question

Monthly Cash Budget
Grove, Inc. is a wholesaler for its only product, deluxe wireless electric drills, which sell for $90 each and cost Grove $54 each. On December 1, 2016, Grove’s management requested a cash budget for December. The following selected account balances at November 30, 2016, were gathered by the accounting department:

Cash				$135,000
Marketable securities (at cost)				210,000
Accounts receivable (all trade)				1,710,000
Inventories (15,000 units)				810,000
Operating expenses payable				140,400
Accounts payable (all merchandise)				583,200
Note payable (due 12/31/2016)				393,000

Actual sales for the months of October and November were 20,000 and 30,000 units, respectively. Projected unit sales for December and January are 50,000 and 40,000, respectively. Experience indicates that 50% of sales should be collected in the month of sale, 30% in the month following sale, and the balance in the second month following sale. Uncollectible accounts, returns, and allowances are negligible.

Planned purchases should provide ending inventories equal to 30% of next month’s unit sales volume. Approximately 70% of the purchases are paid for in the month of purchase and the balance in the following month.

Monthly operating expenses are budgeted at $8.10 per unit sold plus a fixed amount of $189,000 including depreciation of $81,000. Except for depreciation, 60% of operating expenses are paid in the month incurred and the balance in the following month. Interest expense is included in operating expenses.

Special anticipated year-end transactions include the following:
1. Declaration of a $22,500 cash dividend to be paid 2 weeks after the December 20 date of record.
2. Sale of one-half of the marketable securities held on November 30; a gain of $21,000 is anticipated.
3. Pay off the note payable due December 31, 2016.
4. Trade-in of an old computer originally costing $675,000 and now having accumulated depreciation of $540,000 at a gain of $157,500 on a new computer costing $1,350,000. Sufficient cash will be paid at the time of trade-in so that only 50% of the total price will have to be financed.
5. Grove’s treasurer has a policy of maintaining a minimum month-end cash balance of $135,000 but wants to raise this to $225,000 at December 31. She has a standing arrangement with the bank to borrow any amount up to a limit of $450,000.

Prepare a cash budget for Grove, Inc., for December 2016.

Collections in December from customers:

Answer 1

Cash Budget
	December
Beginning, Dec 1,2016	135,000
Expected Cash Collection from Sales	3,420,000
Sale of marketable securities	126,000
Total Expected Available Cash	3,681,000
Expected Payments
Note payable	393,000
Purchase of Computer	382,500
Expected Cash Disbursements for Raw Material	2,538,000
Payment of Operating Expenses-Current Month	307,800
Operating expenses payable	140,400
Total Expected Payment	3,761,700
Cash Balance - Execess/Defficiency	(80,700)
Desired Closing Cash Balance	225,000
Finance from Bank	305,700

Workings:

675,000	Cost
540,000	Acc. Depreciation
135,000	Net Book Value
157,500	Gain
292,500	Trade in Price
1,350,000	Computer Cost
675,000	Finance
292,500
382,500	Cash paid for Computer Purchase

Schedule of Expected Cash Collection
	December	January
Collection from Accounts Receivable	1,170,000	540,000
December Sales	2,250,000	1,350,000
January Sales		1,800,000
Expected Cash Collection	3,420,000	3,690,000

Expected Raw Material Purchase Budget
	December	January
Expected Sales	50,000	40,000
Ending Inventory	12,000
Beginning Inventory	15,000	12,000
Expected Raw Material Purchase- Units	47,000
Raw material Price per unit	54.00
Expected Cash Disbursements for Raw Material	2,538,000

Expected Cash Disbursements for Raw Material
	December
Payment of Accounts Payable	583,200
December Purchase	1,776,600
Expected Cash Disbursements for Raw Material	2,359,800

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Also please give your positive rating.