Question

Bertie Botts Ltd produces designer sweets. Most of its sales are concentrated around holidays such as Valentine's Day, and Christmas. A sales budget is given below for Every Flavor Beans, one of the products that Bertie Botts purchases from a subcontractor.

	July	August	September
Expected Sales in $	$540,000	$620,000	$360,000

20% of total sales are cash sales, and the rest are sales on credit.

60% of all credit sales for any given month is collected in the month of sale. 40% of credit sales are collected in the following month.

The gross profit rate for Every Flavor Beans has generally been 45%.

At the end of each month, Bertie Botts wants to maintain an inventory balance equal to 30% of the following month's expected sales

a) Determine the cash collections from customers in August

b) Determine the accounts receivable balance at the end of August

c) Determine the amount of purchases made during August

d) Assume that the cash balance at the end of September is $30,000. Cash collections in October amount to $266,000, and cash disbursements in October total $300,000. When necessary, Bertie Botts borrows money from Grinch National Bank. Money can be borrowed and repaid in multiples of $1,000 at an annual interest rate of 12%. Simple interest (no compounding) is computed monthly on any outstanding principal and is paid on the last day of each month. Assume the borrowing takes place at the beginning, and repayments at the end of the months in question. Bertie Botts had no debt prior to October, and requires a minimum cash balance of $25,000. Determine the amount that Bertie Botts needs to borrow for the month of October, any interest payments during October, and the ending cash balance on October 31.

Answer 1