Rahman Products, a distributor of organic beverages, needs a cash budget for Dec
ID: 2594262 • Letter: R
Question
Rahman Products, a distributor of organic beverages, needs a cash budget for December. The following information is available The cash balance at the beginning of December $10,000. Actual sales for October and November and expected sales for June are as follows: a. b. October N November Cash Sales Sales on account... Total Sales.. December S 6,000 0.000 7,500 6,250 $26.00 $35,250 $47400 Sales on account are collected over a three-month period in the following ratio: 10% collected in the month sale, 70% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. c. Purchases of inventory will total $25,000 for December. Twenty percent of a month's inventory purchases are paid d. Selling and administrative expenses are badgeted at $13,000 for December. Of this amount, $4,000 is for e. Equipment costing $18,000 will be purchased for cash during December, and dividends totaling S5,000 will be f. The company mast maintain a minimum cash balance of S10,000. An open line of credit is available from the for during the month of purchase. The accounts payable remaining from November's inventory purchases total $16,000, all of which will be paid in December depreciation. Purchase of a copier in December for $4,000. paid during the month. Sale of old assets in December for $1,000. company's bank to bolster the cash position as needed. Required: 1. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during 2. 3. December Prepare a schedule of expected cash collections for December. Prepare a schedule of expected cash disbursement for December.Explanation / Answer
Rahman Products
Cash Budget for the month of December:
Rahman Products
Cash Budget for December
Beginning Cash Balance
$10,000
Add: Cash Collections
$36,000
Sale of old assets
$1,000
Total cash available
$47,000
Less: Cash Disbursements:
($57,000)
Cash Deficit
($10,000)
Financing:
Borrowing
$20,000
Total financing
$20,000
Ending Balance
$10,000
Schedule of cash collections in December:
Cash Sales
$6,000
Collections:
October sales (18% of 20,000)
$3,600
November Sales (70% of 32,000)
$22,400
December Sales (10% of 40,000)
$4,000
Total Cash collections
$36,000
Schedule of expected cash disbursements in December:
Schedule of expected cash disbursements:
Inventory purchases:
December 20% of 25,000
$5,000
November
$16,000
Total inventory payments
$21,000
selling and administrative expenses
$9,000
Purchase of Copier
$4,000
Purchase of Equipment
$18,000
Dividends
$5,000
Total cash disbursements
$57,000
Note:
1. Depreciation expense of $4,000 is excluded as it is a non-cash expense.
2. The equipment purchase of $18,000 and sale of old assets of $1,000 are assumed to be of cash transactions.
3. Since the cash deficit is $10,000 and the minimum cash balance required is $10,000, the company would borrow $20,000 to cover the cash deficit and maintain the minimum cash balance. Hence, borrowing for the month of December is $20,000.
4. The interest rate of borrowing is not mentioned and the time of repayment is not mentioned.
Rahman Products
Cash Budget for December
Beginning Cash Balance
$10,000
Add: Cash Collections
$36,000
Sale of old assets
$1,000
Total cash available
$47,000
Less: Cash Disbursements:
($57,000)
Cash Deficit
($10,000)
Financing:
Borrowing
$20,000
Total financing
$20,000
Ending Balance
$10,000
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