The ACME Toy Company has projected sales as follows: Sales uly August September
ID: 2801236 • Letter: T
Question
The ACME Toy Company has projected sales as follows: Sales uly August September October November December anua $70,000 Other information: 0 1. ACME 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. ACME purchases and pays for raw materials one month in advance of its sales. The purchases are 65% of sales. 2.3. ACME pays 2% sales tax on its sales one month after the sale. 3 4. ACME pays $10,000 rent each month for its factory 4 5. ACME pays $5,000 other costs each month 5 6. A tax prepayment of $40,000 is due in October. 16 7. ACME has a line of credit with it's local bank for S500,000 at 12% interest, and must maintain a bank balance of $10,000 17 8. At September 30th, it had borrowed $35,000 on its LOC, and had a bank balance of $15,000 18 19 a. Prepare a cash budget for the last quarter of the year (October- December) 20 b. Will the ACME have its LOC paid off by 12/311?Explanation / Answer
Collection from reveivables July August September October November December January Sales 70,000 80,000 65,000 75,000 85,000 95,000 80,000 Sales Tax 2% of sales 1,400 1,600 1,300 1,500 1,700 1,900 1,600 Sales incl. sales tax 71,400 81,600 66,300 76,500 86,700 96,900 81,600 50% collection nth month 35,700 40,800 33,150 38,250 43,350 48,450 40,800 25% collection n+1 th month 17,850 20,400 16,575 19,125 21,675 24,225 15% collection n+2th month 10,710 12,240 9,945 11,475 13,005 10% collection n+3th month 7,140 8,160 6,630 7,650 Collection 74,205 80,580 88,230 Sales tax is indirect tax recoverable from Customers Payment for purchases purchase-65% of sales 45,500 52,000 42,250 48,750 55,250 61,750 52,000 Payment n-1th month 52,000 42,250 48,750 55,250 61,750 52,000 Payment of Sales tax Sales Tax 2% of sales n+1 1,400 1,600 1,300 1,500 1,700 1,900 Rent payment 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Other cost 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Tax prepayment 40,000 Cash Budget October November December Quarter Beginning cash balance 15,000 10,000 10,000 15,000 Add receipts: Collections from customers 74,205 80,580 88,230 2,43,015 Total cash available 89,205 90,580 98,230 2,58,015 Less cash disbursements: Merchandise purchases 55,250 61,750 52,000 1,69,000 Payment of Sales tax 1,300 1,500 1,700 4,500 Rent payment 10,000 10,000 10,000 30,000 Other Cost 5,000 5,000 5,000 15,000 Tax Prepaymetn 40,000 40,000 Total cash disbursements 1,11,550 78,250 68,700 2,58,500 Excess (deficiency) of cash available over disbursements -22,345 12,330 29,530 -485 Financing: Borrowings 32,695 - - 32,695 Repayments - -1,653 -18,870 -20,523 Interest -350 -677 -660 -1,687 Total financing 32,345 -2,330 -19,530 10,485 Ending cash balance 10,000 10,000 10,000 10,000 Assumed interest 12% paid each month on loan Assumed Interest paid next month of the loan borrowed Total Loan Op. Balance 35,000 67,695 66,042 35,000 Cl. Balance 67,695 66,042 47,172 47,172 b. No remaining balance of loan will remain Rs. 47,172
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