Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its

Question

Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $91,800. 90-day loan from its bank to help meet cash requirements during the quarter. Because Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled: On July 1. the beginning of the third quarter, the company will have a cash balance of $49,000. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): Past experience shows that 25% of a month's sales are collected in the month of sale. 70% in the month following sale, and 1% in the second month following sale. The remainder is uncollectible. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30. which will be paid during July, total $213,000. Equipment costing $8,600 will be purchased for cash during July. In preparing the cash budget, assume that the $91,800 loan will be made in July and repaid in September. Interest on the loan will total $1,100. Prepare a cash budget, by month and in total, for the third quarter. (Show deficiencies, and total financing preceded by a minus sign wherever appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Explanation / Answer

Workings
Collections                       July        August      September  
From May sales 1%            $2,500
From June sales 70%      $175,000
From June sales 1%                           $2,500
From July Sales 25%       $107,500
From July Sales 70%                         $301,000
From July Sales 1%                                               $4,300
From August Sales 25%                     $157,500
From August Sales 70%                                      $441,000
From Sept. Sales 25%                                          $97,500
                                 _______________________________
                                    $285,000     $461,000     $542,800
Add : Beginning Cash       $49,000       $12,000      $55,400
Total cash available       $334,000     $473,000     $598,200
                                 ===============================
Less : disbursement
For June purchase        $213,000
For July purchase                             $234,000
For August purchase                                           $331,000
Salaries                          $47,000       $37,000       $30,000
Advertising                   $138,000     $138,000       $61,000
Rent payments                 $7,200         $8,600        $8,600
Equipments                     $8,600
                               ________________________________
Total disbursement      $413,800     $417,600       $430,600
Excess deficiency         -$79,800       $55,400       $167,600
Total financing             $91,800                           -$92,900
Cash balance, ending    $12,000       $55,400         $74,700
                               ================================  
Answer                          July           August     September    Quarter
Total cash available      $334,000     $473,000     $598,200    $1,405,200
Total disbursement       $413,800     $417,600     $430,600    $1,262,000
Excess(deficiency) of
receipts over disb.        -$79,800       $55,400      $167,600       $75,800
Total financing              $91,800                 0       -$92,900        -$1,100     
Cash balance, ending    $12,000       $55,400       $74,700       $74,700   
                                    ========================================

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