Kraft budgeted sales are $10,000 per month and let's assume the sales stay the same every month. Its customers pay Kraft based on the following pattern: 20% will pay in the month of sales and take a 3% discount, the remaining customers pay in the month following the sale and they do not receive any discount. Kraft's customers are very good so it has no bad debts. Kraft inventory purchase every month is based on 60% of next month's projected sales and it pays for the inventory purchase immediately. "Other payments," which include salaries, rent and supplies, are always 25% of sales for the month. Construct a cash budget for a typical month (Hint: ignore the first month, what does the monthly cash budget look like for month 2 or month 3). What is the average cash gain or loss during the month?

Q2: Sporting Life expects to have sales of $30,000 in April, $35,000 in May, and $40,000 in June. 30% of the company's sales are paid by cash and the rest are paid on credit. Of the credit sales, 40% of the credit sales is paid in the month following the sale and the other 60% are paid 2 months following the sale, what are the cash receipts for the firm in July?

Answer rating: 100% (QA)

SOLUTION Q1 To construct a cash budget for a typical month we need to consider the following Sales 1... View the full answer