Question - Cash Budget
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
|
$18,000
|
24,000
|
28,000
|
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
|
2300
|
3000
|
3400
|
4200
|
|
Administrative
|
2600
|
3000
|
3200
|
3600
|
|
Total
|
(4900)
|
(6000)
|
(6600)
|
(7800)
|
|
Net income
|
3100
|
4000
|
5400
|
8200
|
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 $6000.
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 $2500.
6. An equipment note of $5000 per month is being paid through August.
7. The company must maintain a cash balance of at least $5000 at the end of each month. The cash balance on june 30 is $5100.
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.
Required
a. Prepare a monthly schedule of budgeted operating cash receipts for july, august and September.
b. Prepare a monthly purchases budget and a schedule of budgeted cash payments for purchases for july, aug and sept.
c. Prepare a monthly cash budget for july, aug and sept. Show borrowings from the company's bank and repayments to the bank as needed to maintain the minimum cash balance.