Question

Question 3 (10 marks) BBG Limited is now in the process of preparing its cash budget for October. The nning cash balance is $44,000. Budgeted cash receipts total $318,000 and budgeted cash disbursements total $344,000. The desired ending cash balance is $60,000. BBG can borrow up to $500,000 from Hang Seng Bank whenever they are in need of cash, with interest not due until the following month. Required: Prepare the BBG's cash budget for October in good form. Question 4 (14 marks) Cloudy Limited is a merchandising company that is preparing a budget for the three- month period ended September 30. The following information is available. Budget Income Statement July Sales $200,000 Cost of goods sold 120,000 Gross margin 80,000 Selling and administrative expenses 30,000 Net operating income $50,000 August $220,000 132,000 88,000 33.000 $55,000 September $260,000 156.000 104,000 39,000 $65.000 Additional information:- Inventory at 30 June Account receivable at 30 June Account payable at 30 June $80,000 $72,000 $102,600 Budgeting Assumption:- 1) Sixty percent of Sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale. 2) Budgeted sales for October are $280,000 3) Each month's ending merchandising inventory should equal $20,000 plus 50% of the next month's cost of goods sold. 4) Depreciation expense is $2,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred. Required: 1) Calculate the expected cash collection for July, August and September. 2) Calculate the budgeted merchandise purchases for July, August and September --END--

Answer 1

Answer to Question 3:

BBG's Cash budget for October:

	$
a. Beginning cash balance	44,000
b. Budgeted cash receipts	3,18,000
c. Budgeted cash disbursements	3,44,000
d. Preliminary cash balance at the end of October (a + b - c)	18,000
e. Target Cash balance	60,000
f. Borrowings (e - d)	42,000
g. Ending cash balance ( d + f)	60,000

Answer to Question 4:

1. Calculation of expected cash collections for July, August and September:

	July	August	September
a. Sales	$2,00,000	$2,20,000	$2,60,000
b. Cash sales ( a * 60%)	$1,20,000	$1,32,000	$1,56,000
	($200,000 * 60%)	($200,000 * 60%)	($200,000 * 60%)
c. Credit sales (a * 40%)	$80,000	$88,000	$1,04,000
	($200,000 * 40%)	($200,000 * 40%)	($200,000 * 40%)
d. 20% of credit sales collected in same month ( c * 20%)	$16,000	$17,600	$20,800
	($80,000 * 20%)	($88,000 * 20%)	($104,000 * 20%)
e. 80% of credit sales collected in next month	$72,000	$64,000	$70,400
		($80,000 * 80%)	($88,000 * 80%)
f. Total cash collections (b + d + e)	$2,08,000	$2,13,600	$2,47,200

2. Calculation of budgeted merchandise purchases for July, August and September:

	July	August	September
a. Sales	$200,000	$220,000	$260,000
b. Ending merchandising inventory	$86,000	$98,000	$104,000
($20,000 + 50% of next month cost of goods sold)	[$20,000 + ($132,000 * 50%)]	[$20,000 + ($156,000 * 50%)]	[$20,000 + ($168,000 * 50%)]
c. Beginning merchandising inventory	$80,000	$86,000	$98,000
d. Total merchandise purchases (a + b - c)	$206,000	$232,000	$266,000