2. Sushi House has budgeted sales revenue as follows: June July August Credit Sa
ID: 2517920 • Letter: 2
Question
2. Sushi House has budgeted sales revenue as follows:
June
July
August
Credit Sales
$85,000
$80,000
$72,000
Cash Sales
14,000
25,000
32,000
Total Sales
$99,000
$105,000
$104,000
Past experience indicates that 70% of the credit sales will be collected in the month of sale and the remaining 30% will be collected in the following month. Purchases of inventory are all on credit and 60% is paid in the month of purchase and 40% in the month following purchase.
Budgeted inventory purchases are:
June
$45,000
July
43,000
August
40,000
Other cash disbursements budgeted: Selling and administration expenses of $14,000 each month, Dividends of $30,000 will be paid in July, and purchase of a computer in August for $3,000 cash. The company wishes to maintain a minimum cash balance of $20,000 at the end each month. The company borrows money from the bank at 9% interest if necessary to maintain the minimum cash balance and must be paid each month whether there is a loan repayment for not. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $25,000. All amounts borrowed during a month are borrowed on the first day. The loan balance as of July 1 is $26,000.
Instructions:
Prepare a cash budget for the month of July. Prepare separate schedules for expected collections from customers and expected payments for purchases as inventory.
PLEASE SHOW CALCULATIONS!!!
June
July
August
Credit Sales
$85,000
$80,000
$72,000
Cash Sales
14,000
25,000
32,000
Total Sales
$99,000
$105,000
$104,000
Explanation / Answer
Schedule of Cash Collections: Particulars July Cash Sales 25000 Collection of Credit Sales: In the Month of Sales(70%) 56000 (80000*70%) In the Following Month of Sales(30%) 25500 (85000*30%) Total Collections 106500 Schedule of Cash Payment for Purchases: Particulars July In the Month of Sales(60%) 25800 (43000*60%) In the Following Month of Sales(40%) 18000 (45000*40%) Payment for Purchases 43800 Cash Budget: Particulars July Opening Cash Balance 25000 Add: Collections during the Month 106500 Taken from above Total Available Cash 131500 Less: Cash Payment for Purchases 43800 Taken from above Selling & Administrative Ex 14000 Given Dividend Payment 30000 Given Interest Expense 195 (26000*9%*1/12) Total Cash Payments 87995 Excess/(Deficit) Cash 43505 Less: Loan Repayment 23505 (Excess Cash above Minimum Balance used for Repayment) Closing Cash Balance 20000
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