Question

On December​ 1,2014​,the Itali Wholesale Co. is attempting to project cash receipts and disbursements through January​ 31,2015.

On this later​ date, a note will be payable in the amount of 107,000.

This amount was borrowed in September to carry the company through the seasonal peak in November and December.

Selected general ledger balances on December 1 are as follows:

Cash

$30,000

Inventory

111,800

Accounts payable

$139,000

Sales terms call for a 3% discount if payment is made within the first 10 days after the​ sale, with the balance due by the end of the month after sale. Experience has shown that 50​% of the billings will be collected within the discount period in the month of the​ purchase, 30​% by the end of the month after​ purchase, and 15​% in the following month. The remaining 5​% will be uncollectible. There are no cash sales.

The average selling price of the​ company's products is

$170

per unit. Actual and projected sales are as​ follows:

October actual	$287,000
November actual	629,000
December estimated	561,000
January estimated	612,000
February estimated	510,000
Total estimated for year ending June 30, 2015	$3,218,750

All purchases are payable within 15 days. Approximately 60​% of the purchases in a month are paid that month and the rest the following month. The average unit purchase cost is $130.Target ending inventories are 570 units plus 20​%of the next​ month's unit sales.

Total budgeted​ marketing, distribution, and​ customer-service costs for the year are $670,000. Of this​ amount, $155,000 are considered fixed​ (and include depreciation of $43,400​).

The remainder varies with sales. Both fixed and variable​ marketing, distribution, and​ customer-service costs are paid as incurred.

.	Prepare a cash budget for December 2014 and January 2015. Supply supporting schedules for collections of​ receivables; payments for​ merchandise; and​ marketing, distribution, and​ customer-service costs.
2.	Why do Itali​'s managers prepare a cash budget in addition to the operating income​ budget?

Requirement 1. Prepare a cash budget for December2014

and January 2015.

Supply supporting schedules for collections of​ receivables; payments for​ merchandise; and​ marketing, distribution, and​ customer-service costs.

Begin by entering the appropriate amounts to calculate the collection of receviables for December2014

and January2015.

​(For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.)

Collections of Receivables
	December 2014	January 2015
From sales in:
October		$0
November
December
January
Total collections

Answer 1

1			Cash budget
						December	January
	Beginning balance					30000	4835
	Add: Collection from sales				(Note:1)	503835	559470
	Total cash available				a	533835	564305
	Less:
	Cash paid for purchase				(Note:2)	429940	465400
	Marketing,distribution and customer service cost:
	Variable costs				(Note:3)	89760	97920
	Fixed costs				(Note:3)	9300	9300
	Total payments				b	529000	572620
	Ending balance				a-b	4835	-8315
	Note:1
	Collection from sales
								December	January
	October sales
	15% on the second month after purchase					(287000*15%)		43050
	November sales
	30% by the end of month after purchase					(629000*30%)		188700
	15% on the second month after purchase					(629000*15%)			94350
	December sales
	50% within 10 days					(561000*50%*0.97)		272085
	30% by the end of month after purchase					(561000*30%)			168300
	January sales
	50% within 10 days					(612000*50%*0.97)			296820
	Total							503835	559470
	Note:2
	Cash paid for purchase
						December	January	February
	Sales in $				a	561000	612000	510000
	Average selling price				b	170	170	170
	Sales in units				c=a/b	3300	3600	3000
	Add: Desired ending inventory					1290	1170
	(570+20% of next month sales)					570+(3600*20%)	570+(3000*20%)
	Total units required					4590	4770
	Less: Beginning inventory					860	1290
	(Inventory in $/Average unit purchase cost)					(111800/130)
	Units to be purchased				d	3730	3480
	Average unit purchase cost				e	130	130
	Cost of purchase				f=d*e	484900	452400
	Payment:
	Accounts payable					139000
	60% in the month					290940	271440
						(484900*60%)	(452400*60%)
	40% in the following month						193960
							(484900*40%)
	Total					429940	465400
	Note:3
	Fixed costs =Fixed costs(incl.dep)-Depreciation=155000-43400=$ 111600
	Fixed costs per month=111600/12=$ 9300
	Variable costs=Total costs-Fixed costs (incl.dep)=670000-155000=$ 515000
	Variable cost ratio to sales=Total variable cost for the year/Total annual sales=515000/3218750=0.16
						December	January
	Sales				a	561000	612000
	Variable cost ratio to sales				b	0.16	0.16
	Variable costs				a*b	89760	97920
2	Cash budget is prepared to ensure that company has sufficient cash to pay suppliers,employees and to pay operating expenses.
	It will also enable to borrow money to meet any shortfall in cash balance.
	Since,operating income budget is based on accrual concepi.It will not provide the infromation on cash level
	I appreciate your ratings