Wood Wynn Enterprises wants to prepare a cash budget for months of September thr

Question

Wood Wynn Enterprises wants to prepare a cash budget for months of September through December. Using the following information, prepare the cash budget schedule and interpret the results.

?     Sales were $50,000 in June and $60,000 in July. Sales have been forecasted to be $65,000, $72,000, $63,000, $59,000, and $56,000 for months of August, September, October, November, and December, respectively. In the past, 10 percent of sales were on cash basis, and the collection were 50 percent in the first month, 30 percent in the second month, and 10 percent in the third month following the sales.

?     Every four months (three times a year) $500 of dividends from investments are expected. The first dividend payment was received in January.

?     Purchases are 60 percent of sales, 15 percent of which are paid in cash, 65 percent are paid one month later, and the rest is paid two months after purchase.

?     $8,000 dividends are paid twice a year (in March and September).

?     The monthly rent is $2,000.

?     Taxes are $6,500 payable in December.

?     A new machine will be purchased in October for $2,300.

?     $1,500 interest will be paid in November.

?     $1,000 loan payments are paid every month.

?     Wages and salaries are $1,000 plus 5 percent of sales in each month.

?     August's ending cash balance is $3,000.

?     WWE would like to maintain a minimum cash balance of $10,000.

Class, the first step in preparing the cash budget would be to determine cash receipts? How would you begin this budget problem?

Explanation / Answer

Step1: Computation of total cash collection in the month september to december.We have,

Step2: Computation of total payment for purchases.We have,

Step3: Computation of cash budet.We have,

Particulars September October November December Total Sales($) 72,000 63,000 59,000 56,000 250,000 Cash Sales(10%) 7,200 6,300 5,900 5,600 25,000 Collection of credit Sales; 50% in the month of sale 36,000 31,500 29,500 28,000 125,000 30% in the following month 19,500 21,600 17,700 16,800 75,600 10% in the second month 5,000 6,000 7,200 6,300 24,500 Total cash collection($) 67,700 65,400 60,300 56,700 250,100

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