Question

Monthly Cash Budget Grove, Inc. is a wholesaler for its only product, deluxe wireless electric drills, which sell for $88 each and cost Grove $53 each. On December 1, 2016, Grove's management requested a cash budget for December. The following selected account balances at November 30, 2016, were gathered by the accounting department: Cash Marketable securities (at cost) Accounts receivable (all trade) Inventories (15,000 units) Operating expenses payable Accounts payable (all merchandise) Note payable (due 12/31/2016) $135,000 210,000 1,710,000 795,000 140,400 583,200 393,000 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 $7.10 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, 2016. 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 $1,380,000. 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 2016.

Answer 1

W/N1: Details of Sales:

Particulars	October	November	December	January
Units Sold/projected to be sold	20000	30000	50000	40000
Value	1760000	2640000	4400000	3520000

W/N2

Details of Purchases:

Total Anticipated Sales of December - 50000

Total anticipated sales of January - 40000

Required inventory on Hand at the end of December - 40000*30% = 12000

Purchase Budget:

Desired Closing Stock - 12000

Units Sold during the month - 50000

(-) Opening Stock - (15000)

Purchases required = 47000 units in the month of December

Purchases for the month of November -

Closing Stock = 15000

Sales = 30000

Opening Stock = 9000

Purchases for the month of November = 36000

W/N3

Details of Sales/Purchases

Particulars	October	November	December	January
Units Sold/projected to be sold	20000	30000	50000	40000
Value	1760000	2640000	4400000	3520000
Units Purchases		36000	47000
Value		1908000	2491000
Amounts Collected from Sales
- Current Month (50%)			2200000
- Previous Month (30%)			792000
- 2 Months Prior (20%)			352000
Total			3344000
Amounts of Purchases paid for
- Current Month (70%)			1743700
- Previous Month (30%)			572400
Total			2316100

W/N4

Operating Expenses Working

Fixed Operating Expenses - 189000

Variable @ 7.10/unit - 355000

(-) Depreciation - (81000)

Cash operating expenses = 463000

Paid in the same month = 277800

W/N5

Sale of Marketable Securities = 210000/2 + 21000 = 126000

W/N6

Trade-in old computer -

Carrying Amount - (675000 - 540000) = 135000

Selling value of the old computer = 135000+157500 = 292500

Buying cost of New computer = 1380000

Differential cash to be paid = 1087500

Amount paid through finances = 1380000*50% = 690000

Paid through internal sources = 397500.

Statement showing cash Budget for the month of December, 2016

Particulars	Amount
Cash Collection from sales	3344000
Cash paid for Purchases	(2316100)
Operating Expenses Paid	(277800)
Cash Dividend to paid	(22500)
Sale of Marketable securities	126000
Note Payable paid	(393000)
Cash paid to buy new computer	(397500)
Net Cashflow (a)	63100
Opening Cash Balance (b)	135000
Borrowing Made (c = d - a - b)	26900
Desired Closing Balance (d)	225000