This is what I have so far: Step 3 E-Lan Electronics expects the following as pe

Question

This is what I have so far:
Step 3 E-Lan Electronics expects the following as pertaining to the capital expenditures and cash budgets. Capital Expenditures The company plans to purchase selling and administrative equipment totaling The company plans to purchase Production equipment totaling Both will be purchased at the end of the March from operating cash flow and will not affect depreciation expense for the first quarter Cash Budget 180,000 3,100,000 All sales are on credit. The company expects to collect 75% of sales in the month of sale, 22%of sales in the month following the sale, 3% percent will be uncollectable. Accounts receivable at the end of last year totaled 1,980,000 This represents the collectable amount of December sales. The company give credit terms of 2/EOM, n/EOM second month All direct materials purchases are on credit. The company expects to pay 70% of purchases in the month of purchase and 30% the following month. Accounts Payable to be paid in January is 1,640,000 The company has a credit line of $3,000,000 for operations. At the end of every month, the cash balance should be 50,000 The cash budget should include an estimate of amounts to be borrowed or returned to the credit line, and an estimated balance of the credit line. The Credit line has a balance at the end of December of 362,000 The company has good credit and can borrow funds on a secured basis at 4% but has not done so.

Explanation / Answer

1.& 2.

3.

4. The interest rate on credit line is very high. The management has access to a secured credit line at a lower rate of interest. They can keep the fixed assets as collateral and they also have a good credit standing. This will help in reducing the interest cost.

Selling and Administrative Expenses Budget Jan   Feb Mar Total salaries      15,000      15,000          15,000          45,000 Rent      17,000      17,000          17,000          51,000 Advertising      82,000      82,000          82,000       246,000 Depreciation      18,500      18,500          18,500          55,500 Other        6,700        6,700            6,700          20,100 Sales Commission    345,000    462,300       414,000    1,221,300 (1.5 per unit) Interest        3,620        8,494            3,465          15,579 Total    487,820    609,994       556,665    1,654,479 Capital Expenditure Budget Jan   Feb Mar Total Selling & Administrative Equipment       180,000       180,000 Production Equipment    3,100,000    3,100,000 Total               -                 -      3,280,000    3,280,000

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