Question

The Tasty Chocolate Company is a merchandising company that sells boxes of assorted chocolates. The company's marketing department estimated sales and purchasing needs for the next three months. These figures follow: (In Units) October November December Beginning Inventory Merchandise Purchases 10,000 60,000 60,000 10,000 10,000 70,000 70,000 10,000 10,000 35,000 40,000 5,000 Sales Ending Inventory. 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. Disbursements for Purchases: Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of the purchase and the remainder is paid in the month following the purchase. One half of these inventory purchases are paid in the month in which they are incurred and the balance will be paid in the following month. The accounts payable balance for purchases at September 30 is $230,000. Operation Expenses: Operation expenses are paid for in the month incurred. Selling expenses are $20,000 in cash. Administrative expenses pald for in cash are expected to total $100,000 each month. Wages are $25,000 per month. Depreciation is $30.000 per month and is not included above. Cash at September 30 totaled $100,000. Other: A payment of $90,000 for the purchase of equipment is scheduled for October, $ 148,000 for purchase of equipment is scheduled for November, and a dividend of $240,000 is to be paid in December Because of their shaky credit, interest is 12% (or 1% per month). Further, the company must maintain a minimum cash balance of $100,000. Borrowing and repayments must be in multiples of $5,000. Interest is paid only when loans are repaid. Complete the following using a word processor and submit.

Answer 1

Question 1: Schedule of expected cash collections:

For the expected cash collections, we need to first calculate the total sales for each month i.e. Units sold*Sales price p.u. One forth of the sales is received in the same month and three forth in the next month. So for October month, one forth of October sales and the accounts receivable at 30 September will be received in October.

12 12 Schedule of expected Cash collections October November December Units sold 60,000 70,000 40,000 Sales price per unit 12 Sales 7,20,000 8,40,000 4,80,000 Collections: 1/4 in the current month 1,80,000 2,10,000 1,20,000 3/4 in the next month 4,50,000 5,40,000 6,30,000 Total collections 6,30,000 7,50,000 7,50,000

Question 2 Inventory purchase budget

For inventory purchase budget, we need to use the units of Merchandise purchase. We will calculate the total purchase value by multiplying the units purchase and purchase price per unit.

Inventory purchase budget October November December Units purchased 60,000 70,000 35,000 Purchase price per unit Total purchases 4,20,000 4,90,000 2,45,000

Question 3 Schedule of cash disbursements for purchase

Half of the purchases are paid in the month of purchase and half is paid in the next month. For the month of October, half of the October purchases are paid and balance in accounts payable at September end which represents the half of September purchases will be paid in October.

Schedule of cash disbursements for purchases October November December Total purchases 4,20,000 4,90,000 2,45,000 Cash disbursement: 1/2 in the current month 2,10,000 2,45,000 1,22,500 1/2 in the next month 2,30,000 2,10,000 2,45,000 Total cash disbursement 4,40,000 4,55,000 3,67,500

Question 4 Schedule of cash disbursements for expenses

Depreciation is a non-cash expense, so we will not include this in our calculations.

Selling expenses, administrative expenses and wages are paid in the same month.

Schedule of cash disbursements for expenses October November December Cash disbursement: Selling expenses 20,000 20,000 20,000 Administrative expenses 1,00,000 1,00,000 1,00,000 Wages 25,000 25,000 25,000 Total cash disbursement 1,45,000 1,45,000 1,45,000

Question 5 Cash budget

Cash budget will start from opening balance. Then add all the receipts and deduct all the disbursements and then the closing balance arrives.

In this example, the minimum closing balance is to be kept at $100,000. If there is shortfall, we need to borrow the money in the multiples of $5,000 at interest rate of 1% per month.

Cash budget October November December Opening balance 1,00,000 1,00,000 1,02,000 Cash receipts 6,30,000 7,50,000 7,50,000 Total cash available 7,30,000 8,50,000 8,52,000 Less: Disbursements For purchases 4,40,000 4,55,000 3,67,500 For expenses 1,45,000 1,45,000 1,45,000 Purchase of equipment 90,000 1,48,000 Payment of dividend 2,40,000 Total cash disbursements 6,75,000 7,48,000 7,52,500 Closing balance 55,000 1,02,000 99,500 Add: Loan taken 45,000 5,000 Closing balance after loan adjustments 1,00,000 1,02,000 1,04,500

Question 6

Ending cash balance = $104,500

Question 7

Amount of loan outstanding at 31 December = $45,000+$5,000 = $50,000