Question

Monthly Cash Budget Grove, Inc. is a wholesaler for its only product, deluxe wireless electric drills, which sell for $90 each and cost Grove $54 each. On December 1, 2019, Grove's management requested a cash budget for December. The following selected account balances at November 30, 2019, were gathered by the accounting department: Cash $135,000 Marketable securities (at cost) 210,000 Accounts receivable (all trade) 1,710,000 Inventories (15,000 units) 810,000 Operating expenses payable 140,400 Accounts payable (all merchandise) 583,200 Note payable (due 12/31/2019) 393,000 Actual sales for the months of October and November were 20,000 and 30,000 units, respectively. Projected unit sales for December and January are 50,000 and 40,000, respectively. Experience indicates that 50% of sales should be collected in the month of sale, 30% in the month following sale, and the balance in the second month following sale. Uncollectible accounts, returns, and allowances are negligible. Planned purchases should provide ending inventories equal to 30% of next month's unit sales volume. Approximately 70% of the purchases are paid for in the month of purchase and the balance in the following month. Monthly operating expenses are budgeted at $8.10 per unit sold plus a fixed amount of $189,000 including depreciation of $81,000. Except for depreciation, 60% of operating expenses are paid in the month incurred and the balance in the following month. Interest expense is included in operating expenses. Special anticipated year-end transactions include the following: 1. Declaration of a $22,500 cash dividend to be paid 2 weeks after the December 20 date of record. 2. Sale of one-half of the marketable securities held on November 30; a gain of $21,000 is anticipated. 3. Pay off the note payable due December 31, 2019. 4. Trade-in of an old computer originally costing $675,000 and now having accumulated depreciation of $540,000 at a gain of $157,500 on a new computer costing $1,350,000. Sufficient cash will be paid at the time of trade-in so that only 50% of the total price will have to be financed. 5. Grove's treasurer has a policy of maintaining a minimum month-end cash balance of $135,000 but wants to raise this to $225,000 at December 31. She has a standing arrangement with the bank to borrow any amount up to a limit of $450,000. Prepare a cash budget for Grove, Inc., for December 2019. Collections in December from customers:

Answer 1

Collection in december from Customer
From October Sales	$          3,60,000
From November Sales	$          8,10,000
From December Sales	$        22,50,000
Total Collection	$        34,20,000

Payments on account of Merchandise purchases	November	December
Unit Sales	$       30,000	$          50,000
Ending Inventories	$       15,000	$          12,000
Total Unit to be available	$       45,000	$          62,000
Beginning inventories	$          9,000	$          15,000
Unit to be produced	$       36,000	$          47,000
Total Dollar Purchases	$ 19,44,000	$    25,38,000
Portion paid in december	$    5,83,200	$    17,76,600

Payment of operating expenses	November	December
Total Variable operating expenses	$      2,43,000	$    4,05,000
Fixed operating expenses	$      1,89,000	$    1,89,000
Total operating expenses	$      4,32,000	$    5,94,000
Monthly Depreciation	$         81,000	$        81,000
Operating expense requiring payment	$      3,51,000	$    5,13,000
Amounts to be paid in december	$      1,40,400	$    3,07,800

Cash Required at the time of computer purchase
Cost of new computer		$ 13,50,000
Book value of old computer	$   1,35,000
Gain on trade in	$   1,57,500
Total trade in allowance		$    2,92,500
Balance owing at trade in		$ 10,57,500
Portion to be financed		$    6,75,000
Cash payment required		$    3,82,500

Grove Inc
Cash Budget
For the month ended december 31,2019
Beginning cash balance	$       1,35,000
Cash Receipts:
Collection from customer (Calculated above)	$     34,20,000
Sale on Securites	$       1,26,000
Short term borrowing	$       1,27,500
Cash Available	$     38,08,500
Cash Disbursement :
Payment on accounts payable (Calculated above)	$     23,59,800
Payment of operating expense payable (Calculated above)	$       4,48,200
Downpayment on computer (Calculated above)	$       3,82,500
Payoff of note payable	$       3,93,000
Total Cash Disbursments	$     35,83,500
Ending Cash Balance	$       2,25,000