Castor, Inc., is preparing its master budget for the quarter ended June 30. Budg
ID: 2545890 • Letter: C
Question
Castor, Inc., is preparing its master budget for the quarter ended June 30. Budgeted sales and cash payments for merchandise for the next three months follow:
Sales are 80% cash and 20% on credit. All credit sales are collected in the month following the sale. The March 31 balance sheet includes balances of $14,000 in cash, $14,000 in accounts receivable, $11,000 in accounts payable, and a $4,000 balance in loans payable. A minimum cash balance of $14,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning of the month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and include sales commissions (10% of sales), shipping (4% of sales), office salaries ($5,000 per month), and rent ($7,000 per month).
Prepare a cash budget for each of the months of April, May, and June. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)
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Budgeted April May June Sales $ 30,000 $ 42,000 $ 26,000 Cash payments for merchandise 24,200 14,800 13,500Explanation / Answer
Ans. Cash budget for the month of April, May and June : Particulars April May June Opening Balance 14,000 14,000 14,000 Sale 24,000 33,600 20,800 Account Receivable 14,000 6,000 8,400 Total 52,000 53,600 43,200 Less: Payment for Merchandise 24,200 14,800 13,500 Commission on Sales (10%) 3,000 4,200 2,600 Shipping Charges (4%) 1,200 1,680 1,040 Office salaries 5,000 5,000 5,000 Rent 7,000 7,000 7,000 Interest on Loan 24 Total Expenses 40,400 32,704 29,140 Balance cash 11,600 20,896 14,060 Add: Loan 2,400 Less: Repayment of loan -6,896 -60 Ending cash balance 14,000 14,000 14,000 Working Notes: 1) Calculation of Cash Sale : Particulars April May June Sale 30,000 42,000 26,000 Cash sale % 80% 80% 80% Cash Sale ($) 24,000 33,600 20,800 2) Calculation of Credit Sale : Particulars April May June Sale 30,000 42,000 26,000 Less: Cash Sale 24,000 33,600 20,800 Credit Sale 6,000 8,400 5,200 3) Calculation of cash received from Accounts receivables : Particulars April May June Opening balance 14,000 Credit sale 6,000 8,400 5,200 Cash received 14,000 6,000 8,400 4) Calculation of Commission on sale : Particulars April May June Sale 30,000 42,000 26,000 Cash sale % 10% 10% 10% Cash Sale ($) 3,000 4,200 2,600 5) Calculation of Shipping Charges : Particulars April May June Sale 30,000 42,000 26,000 Cash sale % 4% 4% 4% Cash Sale ($) 1,200 1,680 1,040
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