Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company's operations: a. The cash balance on December 1 is $58,600. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October November December $ 73,200 $ 78,000 $ 92,000 $ 485,000 $ 568,000 $ 663,000 Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. c. Purchases of inventory will total $316,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $162,000, all of which will be paid in December d. Selling and administrative expenses are budgeted at $514,000 for December. Of this amount, $52,000 is for depreciation. e. A new web server for the Marketing Department costing $117,500 will be purchased for cash during December, and dividends totaling $12,500 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required: 1. Calculate the expected cash collections for December. 2. Calculate the expected cash disbursements for merchandise purchases for December 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

87300 340800 Expected Collection for December Particular October sales (485000 X18+) November Sales (568000 x 60/) December cash sales credit sales (663000x 2007) Total 92000 132600 652700 for! 2) Calculation of expected cash disbursements merchandise purchases for december, December = $ 316000 x 30*/. - $94800, November = $ 162000 Total cash disbursement for purchase = $94800+ $162000 - $ 256800

cash budget Particular Receipts: Opening balance Cash received from sales [From above] 58,600 65,2700. 711300 Total (A) Payments: Purchase of Matrial (From above] Selling & Administrative ($574000 - $ 52000) web server Dividend 256800 462000 117500 12,500 Total (B) 848800 (137500) 157500 Balance [A-B) Finance To maintain minimum balance of $20,000 closing balance 20,000

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