Question

Kristopher Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows: October November December Beginning inventory Merchandise purchases Sales Ending inventory 10,000 60,000 60,000 10,000 10,000 70,000 70,000 10,000 10,000 35,000 40,000 5,000 Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance is paid in the following month. Accounts receivable at September 30 totaled $450,000 Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of purchase and the remainder is paid in the month following purchase. Selling and administrative expenses are expected to total $120,000 each month, excluding depreciation. These will be paid as they are incurred. Depreciation is $5,000 per month. Accounts payable at September 30 totaled $230,000 and related only to merchandise purchases The cash balance at September 30 is $80,000. A payment of $300,000 for purchase of equipment is scheduled for November and a dividend of $200,000 is to be paid in December Company policy indicates a minimum cash balance of $80,000. They can borrow short- term from the bank at an interest rate of 8%. They never borrow more than they need and they must borrow and repay in increments of $1,000. Interest is paid when repayments are made. Required: Prepare a cash budget in good form for each of the months October, November and December, including all required supporting schedules.

Answer 1

October November December $80,000 $1,50,000 $80,000 $1,80,000 $2,10,000 $1,20,000 $4,50,000 $5,40,000 $6,30,000 $7,10,000 $9,00,000 $8,30,000 Receipts Beginning Cash Balance Cash Sale Collection From Account Receivable Total Receipts (A) Payments Cash Purchase Payment to Account Payables Selling Expenses Purcahse OF Equipments Dividend Paid Total Payments (B) | 5 Surplus/ Deficit (A-C) 5 Borrow 7 Repayment Interest Closing Cash balance (A+D-B) $2,10,000 $2,45,000 $1,22,500 $2,30,000 $2,10,000 $2,45,000 $1,20,000 $1,20,000 $1,20,000 $0 $3,00,000 $0 $0 $0 $2,00,000 $5,60,000 $8,75,000 $6,87,500 $1,50,000 $25,000 $1,42,500 $0 $55,000 $0 $0 $0 $55,000 $0 $0 $367 $1,50,000 $80,000 $87,133 Sales receipts Total Sales Cash Sale @ 1/4th Credit Sale @ 3/4 th Cash Realised September October November December $7,20,000 $8,40,000 $4,80,000 $1,80,000 $2,10,000 $1,20,000 $4,50,000 $5,40,000 $6,30,000 $3,60,000 $6,30,000 $7,50,000 $7,50,000 Payment for Purcchase Total Purchase Cash Purchase @ 1/2nd 2 Credit Purchase @ 1/2nd 3 Cash payments September October November December $4,20,000 $4,90,000 $2,45,000 $2,10,000 $2,45,000 $1,22,500 $2,30,000 $2,10,000 $2,45,000 $1,22,500 $4,40,000 $4,55,000 $3,67,500