The ZARA Toy Company has projected sales as follows: Other information: 1. ZARA
ID: 2794074 • Letter: T
Question
The ZARA Toy Company has projected sales as follows:
Other information:
1. ZARA collects 50% of its sales in the month of the sale, 25% in the second month, 15% in the third month and 10% in the fourth month.
2. ZARA purchases and pays for raw materials one month in advance of its sales. The purchases are 65% of sales.
3. ZARA pays 2% sales tax on its Sales one month after the sale.
4. ZARA pays $10,000 rent each month for its factory.
5. ZARA pays $5,000 other costs each month.
6. A tax prepayment of $40,000 is due in October.
7. ZARA has a line of credit with it's local bank for $500,000 at 12% interest, and must maintain a bank balance of $10,000.
8. At September 30th, it had borrowed $35,000 on its LOC, and had a bank balance of $15,000
a. Prepare a cash budget for the last quarter of the year (October - December) Show working in excel
b. Will ZARA have its LOC paid off by 12/31?
Sales July August September October November December January $ 70,000 $ 80,000 $ 65,000 $75,000 $ 85,000 $ 95,000 $ 80,000Explanation / Answer
july
august
september
october
november
december
january
sales
70000
80000
65000
75000
85000
95000
80000
October
November
December
opening cash balance
15000
10000
10000
cash collection
50%
37500
42500
47500
25%
16250
18750
21250
15%
12000
9750
11250
10%
7000
8000
6500
total cash collection
72750
79000
86500
total cash availlable
72750+15000
87750
89000
96500
total expenditure
purchases
55250
61750
52000
2% sales tax
1300
1500
1700
factory rent
10000
10000
10000
other cost
5000
5000
5000
tax payment
40000
total expenditure
111550
78250
68700
excess / shortage of cash
87750-111550
-23800
10750
27800
minimum required bank balance
10000
10000
10000
amount borrowed/ refund
-33800
750
17800
opening balance in Line of credit
-35000
-68800
-68050
month end balance in line of credit
-68800
-68050
-50250
No Zara would not be able to pay its debt by 12/31 as it contains a balance of 50250
july
august
september
october
november
december
january
sales
70000
80000
65000
75000
85000
95000
80000
October
November
December
opening cash balance
15000
10000
10000
cash collection
50%
37500
42500
47500
25%
16250
18750
21250
15%
12000
9750
11250
10%
7000
8000
6500
total cash collection
72750
79000
86500
total cash availlable
72750+15000
87750
89000
96500
total expenditure
purchases
55250
61750
52000
2% sales tax
1300
1500
1700
factory rent
10000
10000
10000
other cost
5000
5000
5000
tax payment
40000
total expenditure
111550
78250
68700
excess / shortage of cash
87750-111550
-23800
10750
27800
minimum required bank balance
10000
10000
10000
amount borrowed/ refund
-33800
750
17800
opening balance in Line of credit
-35000
-68800
-68050
month end balance in line of credit
-68800
-68050
-50250
No Zara would not be able to pay its debt by 12/31 as it contains a balance of 50250
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