Hailey’s Hats manufactures and distributes hats for every imaginable occasion. Henrietta Hailey started the company in her house three years ago and has been surprised at her success. She is considering an expansion of her business and needs to prepare cash budgeting information for presentation to Second National Bank to secure a loan. Henrietta is not an accountant, so she has asked you to help her with preparing the necessary reports. Hailey’s Hats began the month with a bank balance of $10,000. The budgeted sales for March through June are as follows:

Henrietta has found that she generally collects payment for credit sales over a two-month period. Typically, 70 percent is collected in the month of sale and the remainder is collected in the next month. Her policy is to purchase inventory each month equivalent to 60 percent of that month’s budgeted sales. She thinks this provides her sufficient inventory levels to manage unanticipated changes in demand. Hailey’s Hats pays for inventory purchases in the month following purchase. Selling and administrative expenses are budgeted to be 30 percent of each month’s sales. One-half of the selling and administrative expenses is accounted for by depreciation on Henrietta’s manufacturing equipment. The company purchased additional manufacturing equipment in April at a cost of $24,000. Henrietta does not receive a salary, but she does pay herself dividends as company performance allows. The first quarter of the year was very profitable, so Henrietta paid herself a dividend of $12,500 in April. Henrietta wants to maintain a minimum cash balance of $10,000 and has established a line of credit so she can borrow enough money to make up any shortfall. If the company must borrow from the line of credit, the loan will be made at the beginning of the month and any repayment will be made at the end of the month of repayment.

A. Prepare a cash receipts budget for April, May, and June.
B. Prepare a cash disbursements budget for April, May, and June.
C. Prepare a summary cash budget for April, May, andJune.

  • CreatedMarch 11, 2015
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