You have just been hired as a management trainee by Cravat Sales Company, a nati
ID: 2473857 • Letter: Y
Question
You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer’s silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below.
The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:
The large buildup in sales before and during June is due to Father’s Day. Ending inventories are supposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.
Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month’s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.
All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $26,000 cash. The company declares dividends of $10,000 each quarter, payable in the first month of the following quarter. The company’s balance sheet at March 31 is given below:
The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $140,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.
Create: A cash budget in month and total
Create: A budgeted balance sheet as of June 30.
You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer’s silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below.
Explanation / Answer
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CRAVAT SALES COMPANY CASH BUDGET FOR THE 3 MONTHS ENDING JUNE 30 APRIL MAY JUNE TOTAL CASH BALANCE (BEGINNING) 19000 10450 10150 19000 ADD: RECEIPTS FROM CUSTOMERS 278000 334000 428000 1040000 TOTAL CASH AVAILABLE 297000 344450 438150 1079600 LESS: DISBURSEMENTS 0 PAYMENT FOR PURCHASES 225750 297500 296000 819250 SALES COMMISSION PAID 39000 53000 69000 161000 SALARIES & WAGES PAID 31900 31900 31900 95700 UTILITIES PAID 18500 18500 18500 55500 MISCELLANEOUS 3400 3400 3400 10200 DIVIDENDS PAID 10000 0 0 10000 PURCHASE OF LAND 0 26000 0 26000 TOTAL DISBURSEMENTS 328550 430300 418800 1177650 EXCESS OF RECEIPTS OVER DISBURSEMENTS -31550 -85850 19350 -98050 FINANCING: 0 BORROWING 42000 96000 0 138000 REPAYMENT 0 0 6000 6000 INTEREST PAID 0 0 3180 3180 TOTAL FINANCING 42000 96000 -9180 128820 CASH BALANCE (ENDING) 10450 10150 10170 10170 In April, there was a deficiency of $ 31,550 so the company borrows $42000 as it requires a minimum balance of $10,000 and borrowing can be done in multiples of $1,000 In May, there was a deficiency of $ 85,850 so the company borrows $96000 as it requires a minimum balance of $10,000 and borrowing can be done in multiples of $1,000 In June, there was an excess of $ 19,350 so the company repays interest at 1% for 3 months on $42,000 and for 2 months on $96,000. As it requires minimum balance of $10,000 and loan can be repaid in multiples of $1,000; It pays back $6,000Related Questions
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