Wallaby Kite Company, a small Melbourne firm that sells kites on the Web, wants
ID: 2372101 • Letter: W
Question
Wallaby Kite Company, a small Melbourne firm that sells kites on the Web, wants a master budget for the 3 months beginning January 1, 20X2. It desires an ending minimum cash balance of $ 20,000 each month. Sales are forecasted at an average wholesale selling price of $ 8 per kite. Merchandise costs average $ 4 per kite. All sales are on credit, payable within 30 days, but experience has shown that 60% of current sales are collected in the current month, 30% in the next month, and 10% in the month thereafter. Bad debts are negligible. In January, Wallaby Kite is beginning just- in- time (JIT) deliveries from suppliers, which means that purchases will equal expected sales. On January 1, purchases will cease until inventory decreases to $ 24,000, after which time purchases will equal sales. Purchases during any given month are paid in full during the following month. Monthly operating expenses are as follows:
Wages and salaries
$60,000
Insurance expired
500
Depreciation
1000
Miscellaneous
10,000
Rent
$1000/month + 10% of quarterly sales over $40,000
Cash dividends of $ 6,000 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $ 1,000 is paid at the beginning of each month, and the additional 10% of sales is settled quarterly on the tenth of the month following the end of the quarter. The next rent settlement date is January 10. The company plans to buy some new fixtures for $ 12,000 cash in March. Money can be borrowed and repaid in multiples of $ 2,000. Management wants to minimize borrowing and repay rapidly. Simple interest of 10% per annum is computed monthly but paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Compute interest to the nearest dollar.
October
$152,000
November
100,000
December
100,000
January
248,000
February
280,000
March
152,000
April
180,000
Liabilities as of December 31, 2007
Accounts payable
$ 142,200
Dividends payable
$ 6,000
Rent payable
$ 31,200
Owners' Equity
$ 102,800
Assets as of December 31, 2007
Cash
$ 20,000
Accounts receivable
$ 50,000
Inventory
$ 156,200
Unexpired insurance
$ 6,000
Fixed assets, net
$ 50,000
$ 282,200
A) Prepare a master budget including a budgeted income statement, balance sheet, cash budget, and supporting schedules for the months January– March 20X2.
B) Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment of the bank loan.
Wages and salaries
$60,000
Insurance expired
500
Depreciation
1000
Miscellaneous
10,000
Rent
$1000/month + 10% of quarterly sales over $40,000
Explanation / Answer
Morning. Ok well I went through some of the figures and think I did the budgeted cash disbursements for merchandise purchases correctly. I also started n on the 3 month cash budget. I am hungup now here. I understand that all money financed is to be paid in full in the following month. However as the mth of may unfolds I come to see that we have a surplus of cash this month ($76400) however when we pay back previous mth finance we are at a point of needing to finance money to cover next mth
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