The sales forecast for January to May 20x4 and actual sales for November and December 20x3 for

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Question:

The sales forecast for January to May 20x4 and actual sales for November and December 20x3 for Purple Company are as follows:

Month Sales

Actual (20x3) November 80,000

December 70,000

Forecast (20x4)January 80,000

February 100,000

March 80,000

April 100,000

May 90,000

The 20% of sales is in cash and the rest is on credit, payment on which is realized on the third month. The following other information are also available.

a. amount of purchase is budgeted at 60% of the sales turnover of a month and paid on the third month of purchase.

b. Variable expenses is 5% of turnover - time lag of payment half month

c. Commission on credit sales at 5% is payable on the third month

d. Rent and other expenses amounting to 3,000 paid every month

e. Payment for purchase of fixed assets amounting to 50,000 on March 20x4

f. Payment for taxes on April 20x4 amounting to 20,000

g. There will be an opening cash balance of 25,000.

Required:

Cash budget for five months from January to May 20x4

2.Hot Foot Enterprises would like to maintain its cash account at a minimum level of 25,000, but expect the standard deviation in net daily cash flows to be 2,000. the effective annual rate on marketable securities to be 6.5 percent per year; and the trading cost per sale or purchase of marketable securities to be 200 per transaction. What will be their optimal cash return point?

3.Hot Foot Enterprises would like to maintain its cash account at a minimum level of 25,000, but expect the standard deviation in net daily cash flows to be 2,000. the effective annual rate on marketable securities to be 6.5 percent per year; and the trading cost per sale or purchase of marketable securities to be 200 per transaction. What will be their optimal upper cash limit?