The following information is budgeted for McCracken Plumbing Supply Corporation

Question

The following information is budgeted for McCracken Plumbing Supply Corporation for next quarter: All sales at McCracken are on credit. Forty percent are collected in the month of sale, 58% in the month following the sale, and the remaining 2% are uncollectible. Merchandise purchases are paid in full the month following the month of purchase. The selling and administrative expenses above include $8,000 of depreciation on display fixtures and warehouse equipment. All other selling and administrative expenses are paid as incurred. McCracken wants to maintain a cash balance of $15,000. Any amount below this can be borrowed from a local bank as needed in increments of $1,000. All borrowings are made at month end. Required: Prepare McCracken's cash budget for May. McCracken expects to have $24,000 of cash on hand at the beginning of May.

Explanation / Answer

Cash budget For the M/o May Opening cash Balance                24,000 Add: receipts Collection from Customers April Sales ($110000 X 58%) 63800 May Sales ($130,000 X 40%) 52000              115,800 Total Cash available from operations              139,800 Less: Cash Disbursements Merchandise Purchases                85,000 Selling & Admn . Exp. ($50000 - $8000)                42,000 Total Disbursement              127,000 Excess cash avail over disburse & Invest.                12,800 Financing: Borrowings from Local Bank                  3,000 Total Financing                  3,000 Net Cash Balance Closing                15,800

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