Question

Barnum Distributors wants a projection of cash receipts and cash payments for the month of November. On November 28, a note will be payable in the amount of $98,500, including interest. The cash balance on November 1 is $29,600. Accounts payable to merchandise creditors at the end of October were $217,000.
The company’s experience indicates that 70 percent of sales will be collected during the month of sale, 20 percent in the month following the sale, and 7 percent in the second month following the sale; 3 percent will be uncollectible. The company sells various products at an average price of $11 per unit. Selected sales figures are as follows:
Units
Sept.—actual . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Oct.—actual . . . . . . . . . . . . . . . . . . . . . . . . . .. 60,000
Nov.—estimated . . . . . . . . . . . . . . . . . . . . . ... 80,000
Dec.—estimated . . . . . . . . . . . . . . . . . . . . . .. 50,000
Total estimated for the current year . . . . . . . . 800,000
Because purchases are payable within 15 days, approximately 50 percent of the purchases in a given month are paid in the following month. The average cost of units purchased is $7 per unit.
Inventories at the end of each month are maintained at a level of 2,000 units plus 10 percent of the number of units that will be sold in the following month. The inventory on October 1 amounted to 8,000 units.
Budgeted operating expenses for November are $220,000. Of this amount, $90,000 is considered fixed (including depreciation of $35,000). All operating expenses, other than depreciation, are paid in the month in which they are incurred.
The company expects to sell fully depreciated equipment in November for $8,400 cash.

Instructions
Prepare a cash budget for the month of November, supported by schedules of cash collections on accounts receivable and cash payments for purchases of merchandise.



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  • CreatedApril 17, 2014
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