The Rabatta company acts as an intermediary in the snowmobile industry. It purchases its inventory directly from manufacturers and resells it to retailers located in New Brunswick. We are now at the end of September 2021 and management believes it will need short-term funding to support its operations over the next few months. Rabatta, therefore, plans to request a line of credit from its bank

Before authorizing this line of credit, the bank requires Rabatta to provide it with a cash budget for the last three months of 2021, i.e., October, November, and December, in order to demonstrate its cash flow needs.

Here is some relevant information:

• Sales for the months of July, August, and September 2021 amounted to $50,000, $60,000, and $80,000, respectively.

• Rabatta management projects the following sales for the next few months:

October 2021 $225,000

November 2021 $294,000

December 2021 $320,000

January 2022 $180,000

• According to the company's past experience, the collection of sales is done as follows: 30% following the month of the sale, 50% two months after the sale, and the remaining 20% in the third month following the sale. sale. All sales are made on credit to established customers.

• The cost of sales represents 80% of sales. Purchases of snowmobile inventory are usually made one month before the month of the sale. Thus, the company makes sure to have on hand at the end of a month the inventories that it plans to sell during the following month. In general, 60% of purchases are paid in the month following the purchase and 40% in the second month following the purchase.

• Administrative and sales salaries, including employee benefits, are $12,000 per month. Additionally, the company pays a 2% commission of sales to sellers. This commission is paid in the month of the sale.

• Rabatta plans to purchase a service truck in October at a cost of $35,000. This amount will be financed by the concessionaire. Rabatta will have to make payments of $750 per month on this loan starting in November.

• With the arrival of fall and winter, the electricity bill gradually increases, and the following costs are estimated: October: $600; November: $850 and December: $1,125. These fees are paid the month following the month of use. Electricity usage for the month of September was $425.

• Other business operating expenses remain at $3,000 per month.

• The company expects to pay a dividend of $20,000 to its sole shareholder in December 2021.

• Depreciation expense is $4,000 per month.

• The company has a cash balance of $65,000 as of September 30, 2021.

• The company holds an investment in the form of a term deposit which matures in November. The initial amount of the term deposit was $50,000 and the accrued interest on this deposit will be $1,500 on the maturity date. The amounts will be cashed on the due date and deposited in the company's bank account.

Work to do:

Prepare a disbursement budget for purchases for the last three months of 2021. (You must demonstrate the details of all your calculations)
 

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F H 372 Jul Aug Sep Oct Nov Dec Jan 373 Sales 374 Collections: 50000 60000 80000 225000 294000 320000 180000 375 During 1st month after sale(30% of credit) 376 During 2nd month after sale(50% of credit) 15000 18000 24000 67500 88200 96000 25000 30000 40000 112500 147000 377 During 3rd month after sale(20% of credit) 10000 12000 16000 45000 378 Total collections 64000 119500 216700 379 380 Purchases (80% of next month sales) 381 Payments: 382 During 1st month after purchases(60% purchases) 64000 180000 235200 256000 144000 38400 108000 141120 153600 86400 383 During 2nd month after purchases(40% purchases) 25600 72000 94080 102400 384 Total payments 133600 213120 247680 3600 385 386 Cash Budget 387 Total collections (A) 388 Term deposit matured 389 Total receipts Oct Nov Dec 64000 119500 216700 51500 64000 171000 216700 390 Less: 391 Total payments 133600 213120 247680 392 Comission(2% of sales of same month) 4500 5880 6400 393 Admin and sales salaries 394 Truck purchase loan 395 Electricity 12000 12000 12000 750 750 425 600 850 396 Operating expenses 3000 3000 3000 397 Dividend 398 Total disbursement (B) 20000 153525 235350 290680 399 Closing cash balance (C=A-B) -89525 -64350 -73980 400 401 Cash at start of the month(D) 402 Cumulative cash (E=C+D) 65000 -24525 -64350 -73980 403 Loan required/Cash defecit 24525 64350 73980 404 E. D. F H 372 Jul Aug Sep Oct Nov Dec Jan 373 Sales 374 Collections: 50000 60000 80000 225000 294000 320000 180000 375 During 1st month after sale(30% of credit) 376 During 2nd month after sale(50% of credit) 15000 18000 24000 67500 88200 96000 25000 30000 40000 112500 147000 377 During 3rd month after sale(20% of credit) 10000 12000 16000 45000 378 Total collections 64000 119500 216700 379 380 Purchases (80% of next month sales) 381 Payments: 382 During 1st month after purchases(60% purchases) 64000 180000 235200 256000 144000 38400 108000 141120 153600 86400 383 During 2nd month after purchases(40% purchases) 25600 72000 94080 102400 384 Total payments 133600 213120 247680 3600 385 386 Cash Budget 387 Total collections (A) 388 Term deposit matured 389 Total receipts Oct Nov Dec 64000 119500 216700 51500 64000 171000 216700 390 Less: 391 Total payments 133600 213120 247680 392 Comission(2% of sales of same month) 4500 5880 6400 393 Admin and sales salaries 394 Truck purchase loan 395 Electricity 12000 12000 12000 750 750 425 600 850 396 Operating expenses 3000 3000 3000 397 Dividend 398 Total disbursement (B) 20000 153525 235350 290680 399 Closing cash balance (C=A-B) -89525 -64350 -73980 400 401 Cash at start of the month(D) 402 Cumulative cash (E=C+D) 65000 -24525 -64350 -73980 403 Loan required/Cash defecit 24525 64350 73980 404 E. D.