Introduction to managerial Accounting 5E - pg 414 - PROBLEM 79 Preparing Merchandise Purchases and Cash Budgets

Kat Ltd.s September balance sheet contains the following information:

October 31 cash balance: $40,950

Cash $37,500 (dr)

Accounts Receivable $126,000 (dr)

Allowance for Doubtful Accounts $2,800 (cr)

Merchandise Inventory $26,250 (dr)

Management has designated $37,500 as the firms minimum monthly cash balance.

Other information about the firm and its operations is as follows:

a. Sales revenues of $350,000, $420,000, and $312,500 are expected for October, November, and December, respectively. All goods are sold on account.

b. The collection pattern for accounts receivable is 60% in the month of sale, 39% in the month following the month of sale, and 1% uncollectible, which is set up as an allowance.

c. Cost of goods sold is 60% of sales revenues.

d. Managements target ending balance of merchandise inventory is 10% of the current months budgeted cost of goods sold.

e. All accounts payable for inventory are paid in the month of purchase.

f. Other monthly expenses are $49,250, which includes $3,500 of depreciation and $2,000 of bad debt expense.

g. In the event of a shortfall, the company borrows money. In contrast, in the event of excess cash, the company invests in short-term investments. Borrowings and investments are assumed to be made at the end of a month in increments of $6,250.

h. Interest on borrowings is 10% per year, payable every quarter, on the accumulated amount of the loan; similarly, interest earned on investments is 8% per year on the accumulated investments and is received every quarter. Investments can be matured and the principal amount redeemed in June or December of a year.

Required:

1. Prepare a merchandise purchases budget for October and November.

2. Prepare the cash budgets for October and November, including the effects of financing (borrowing or investing). Interest is earned or paid quarterly.

My question is from 2. - On the Cash Budget for October and November, how much is the expenses for each month? - This had been answered previously as - October - $43,400 and November - $43,750, however I didn't understand why there was a $350 difference. Are these figures correct, and if so how did we get these figures?