Cash budgeting for Carolina Apple, a merchandising firm, is performed on a quarterly basis. The company is
Question:
Cash budgeting for Carolina Apple, a merchandising firm, is performed on a quarterly basis. The company is planning its cash needs for the third quarter of 2012, and the following information is available to assist in preparing a cash budget. Budgeted income statements for July through October 2012 are as follows:
July | August | September | October | |
Sales | $10,000 | 24,000 | 20,000 | 36,000 |
Cost of goods sold | (10,000) | (14,000) | (16,000) | (20,000) |
Gross profit | 8,000 | 10,000 | 12,000 | 16,000 |
Less: other expenses | ||||
Selling | 2,300 | 3,000 | 3,400 | 4,200 |
Administrative | 2,600 | 3,000 | 3,200 | 3,600 |
Total | (4,900) | (6,000) | (6,600) | (7,800) |
Net income | 3,100 | 4,000 | 5,400 | 8,200 |
Additional information:
1. Other expenses which are paid monthly include $1000 of depreciation per month.
2. Sales are 30% for cash and 70% on credit.
3. Credit sales are collected 20% in the month of sale, 70% one month after sale and 10% two months after sale. May sales were $15,000 and June sales were $16,000.
4. Merchandise is paid for 50% in the month of purchase; the remaining 50% is paid in the following month. Accounts payable for merchandise at June 30 totaled $6,000.
5. The company maintains its ending inventory levels at 25% of the cost of goods to be sold in the following month. The inventory at June 30 is $2,500.
6. An equipment note of $5,000 per month is being paid through August.
7. The company must maintain a cash balance of at least $5,000 at the end of each month. The cash balance on June 30 is $5,100.
8. The company can borrow from its bank as needed. Borrowings and repayments must be in multiples of $100. All borrowings must take place at the beginning of a month, and all repayments are made at the end of the month. When the principal is repaid, interest on the repayment is also paid. The interest rate is 12% per year.
Prepare a monthly cash budget for July, August and September. Show borrowings from the company's bank and repayments to the bank as needed to maintain the minimum cash balance.
Fundamentals of Cost Accounting
ISBN: 978-1259565403
5th edition
Authors: William Lanen, Shannon Anderson, Michael Maher