1 Floribama Clothing has generated $130,000 in sales during the past few months,
ID: 2712308 • Letter: 1
Question
1 Floribama Clothing has generated $130,000 in sales during the past few months, and it is expected that this level of sales will continue for the next year. Based on past experience, 40 percent of the sales will be collected in the month of the sale, and these customers will take the 3 percent cash discount that is offered for early payment. The remaining 60 percent of the sales will be collected one month after the sale. Floribama normally purchases and pays for raw materials, which cost 70 percent of the sales prices, in the same month the finished goods are sold. Employees' wages represent 15 percent of the sales price, and monthly rent is $15,000. The company currently has no cash, but its target cash balance is $6,000. Construct Floribama's cash budget for the next three months.Explanation / Answer
Floribama Clothing Cash Budget All amounts in $ Details Month 1 Month 2 Month 3 Sales revenue 130,000 130,000 130,000 Cash Collection Month 1 sales 50,440 78,000 Month 2 sales 50,440 78,000 Month 3 sales 50,440 Total Cash Collection 50,440 128,440 128,440 Cash Payment for raw materials @70% of sales 91,000 91,000 91,000 Employee wages @15% of sales 19,500 19,500 19,500 Rent payment 15,000 15,000 15,000 Total cash payment 125,500 125,500 125,500 Cash Balance (75,060) 2,940 2,940 So after three month the company will have a negative cash balance of $69,180 To get the target cash balance the company needs bank borrowing. Same momth collection reduced by 3% for cash discount.
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