Scott Products Inc. is a merchandising company that sells binders, paper, and ot
ID: 2545045 • Letter: S
Question
Scott Products Inc. is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Scott Products has had to borrow money during the third quarter to support peak sales of back August. The following information has been assembled to assist in preparing a cash budget for the quarter a. Budgeted monthly absorption costing income statements for for July through October are as follows: materials, which occur during Sales Ill September $40,000 $70,000 $50,000$45,000 30,000 27,000 Cost of goods sold Gross margin Selling and administrative expenses: 24,000 42,000 16,000 28,000 20,000 18,000 Selling expense Administrative expense" 7,200 5,600 11,700 7,200 7,300 8,500 6,100 5,900 13,200 $ 3,200 9,1005,400 S 4,800 Total expenses 12,800 18,900 14,600 ting income Includes $2,000 depreciation each month. Sales are 20% for cash and 80% on credit. Credit sales are collected over a three-month period, with 10% collected in tha month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totaled $30,000, and June sales totalled $36,000. c. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Acounts payable for inventory purchases at June 30 total $11,700 e. The maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $18,000. f. Land costing $4,500 will be purchased in July g. Dividends of $1,000 will be declared and paid in September. h. The cash balance on June 30 is $8,000; the company must maintain a cash balance of at least this amount at the end of each month i. The company has an agreement with a local bank that allows the company to borrow up to a total loan balance of $40,000. The interest rate on these loans is 1% per month. All borrowing is done at the beginning of a month. The company would, as far as it Interest must be paid at the end of each month based on the outstanding loans for that no loans outstanding as at June 30 is able, repay the loan at the end of each month. month. There areExplanation / Answer
Sales Budget Jul Aug Sep Total Sales in Units 40,000 70,000 50,000 160,000 Cash Sales -20% 8,000 14,000 10,000 32,000 Credit Sales - 80% 32,000 56,000 40,000 128,000 Answer 1. Schedule of Expected Cash Collections from Sales Jul Aug Sep Total Cash Sales 8,000 14,000 10,000 32,000 Sales on account: May Sales 4,800 June Sales 20,160 5,760 July Sales 3,200 22,400 6,400 32,000 Aug Sales 5,600 39,200 44,800 Sep Sales 4,000 4,000 Total cash Collections 36,160 47,760 59,600 112,800 Answer 2-a. Merchandise Purchase Budget Jul Aug Sep Total Budgeted Cost of Goods Sold 24,000 42,000 30,000 96,000 Add: Closing Inventory 31,500 22,500 20,250 20,250 Total Needs 55,500 64,500 50,250 116,250 Less: opening Inventory (18,000) (31,500) (22,500) (18,000) Required Inventory Purchases 37,500 33,000 27,750 98,250 Answer 2-b. Schedule of Cash payments to Suppliers Jul Aug Sep Total Cash Payment Accounts Payable - Jun 30 11,700 11,700 Jul Purchases 18,750 18,750 37,500 Aug Purchases 16,500 16,500 33,000 Sep Purchases 13,875 13,875 Total Cash Payment to Suppliers 30,450 35,250 30,375 96,075 Answer 3. Cash budget Jul Aug Sep Total Opening cash Balance 8,000 8,310 8,770 8,000 Add: receipts Collection from Customers 36,160 47,760 59,600 143,520 Total Cash available 44,160 56,070 68,370 151,520 Less: Disbursements For Inventory Purchase 30,450 35,250 30,375 96,075 For Selling Expenses 7,200 11,700 8,500 27,400 For Administration Expenses 3,600 5,200 4,100 12,900 For Land 4,500 4,500 For Dividends - - 1,000 1,000 Total Disbursements 45,750 52,150 43,975 141,875 Excess (deficiency) of cash available over disbursements (1,590) 3,920 24,395 9,645 Financing: Borrowings 10,000 5,000 15,000 Repayment - - (15,000) (15,000) Payment of interet - Bank loan (100) (150) (150) (400) Total Financing Net Cash Balance Closing 8,310 8,770 9,245 9,245
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