Question

PROBLEM 2 Snow White Comnpauy sells its product for S 8per unit. Its actual and projected sales units are as follows October September Angust 18,000 July June 14,000 15,000 20,000 Sales (Units) 12.000 All sales are on credit. According to the company's experience shows that 50 % of credit sales is collected in the month of the sale, 30 % in the momth after the sale, 18 % in the second month after the sale and the remainder is uncollectable. The product's purchase price is S 5 per unit. All purchases are payable within 20 days. Thus, 60% of purchase made ina month is paid in that month and the remaining 40 % in paid in the next month. The company has a policy to maintain no ending monthly inventory because of damage. Selling and administrative expenses for the year are S 240,000 and are paid evenly throughout the year in cash. The company decides to pay dividend S 2,500 in September. The company's mnimu cash balance for month-end is S 20,000 Required: Prepare a cash budget for August to October

Answer 1

Cash budget for the month from August to October

Month. August. September. October

Opening cash 0 23280 51780

Sales Collection. 137280 132000 121920

Total receipts 137280 155280 173700

less

purchases 94000 81000 72000

expenses 20000 20000 20000

dividend 0 2500 0

closing cash 23280 51780 81700

Working note note total collection for august

= 18% sales of June + 30% sales of July + 50% sales of august

= 18%* 96000 + 30%*160000+ 50%* 144000

=$ 137280

Working note note total collection for September

= 18% sales of July + 30% sales of August + 50% sales of September

= 18%* 160000 + 30%*144000 + 50%* 120000

=$ 132000

Working note note total collection for October

= 18% sales of August + 30% sales of September  + 50% sales of October

= 18%* 144000 + 30%*120000 + 50%* 112000

=$ 121920

Working note of purchase of august

= 60% of August + 40% of July

=$ 94000

Working note of purchase of September

= 60% of September + 40% of August

=$ 81000

Working note of purchase of October

= 60% of October  + 40% of September

=$ 72000

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I have assumed opening cash balance nil as no information was given about opening balance.