BUDGETING AND PLANNING Iron Creatures Enterprises, a merchandising entity, has p
ID: 2471802 • Letter: B
Question
BUDGETING AND PLANNING
Iron Creatures Enterprises, a merchandising entity, has provided the following budgeted information:
Cash sales account for one-fifth of total sales, while the remaining four-fifths are on account. Iron Creatures budgets
for sales of 10,000 units in February. Unit sales projected for March, April, and May are 12,000 (March), 11,000
(April), and 14,000 units (May).
Past experience indicates collections on account are as follows:
• 40% will be collected in the month of sale
• 45% will be collected in the following month
• 10% will be collected in the 2nd month following the sale
• 5% are never collected
Purchases of merchandise inventory are all on credit; 25% is paid in the month of purchase, 50% is paid in the 1st
month after the purchase and 25% in the 2nd month following the purchase.
Other items budgeted include the following:
A) Selling and Administrative Expenses of $70,000 per year, including $10,000 of annual depreciation expense
B) Equipment costing $45,000 will be purchased for cash in April
C) Fixed assets with a cost of $30,000 and accumulated depreciation of $18,000 will be sold in May; a gain of
$5,000 is expected to be realized
D) The company will purchase stock of various other companies in the month of April, paying $20,000 cash
E) Interest on any line of credit loan must be paid monthly.
Iron Creatures wishes to maintain a minimum cash balance of $12,000 at the end of each month. The company
borrows money from the bank at 6% interest if necessary to maintain the minimum cash balance. Borrowed money
is repaid in months when there is an excess cash balance. The beginning cash balance on April 1 is projected to be
$12,000. The beginning loan balance on April 1 is projected to be $31,000.
1) Complete the supporting schedules for cash collections from sales and cash payments for merchandise.
CASH COLLECTIONS ON SALES
Collection Month
CASH PAYMENTS ON MERCHANDISE PURCHASES
Payment Month
Purchase Month
CREDIT SALES
2) Prepare a cash budget for Iron Creatures Enterprises for the months of April and May. Be sure to indicate the
ending cash balance and ending loan balance for each month.
APRIL MAY
Beginning of Month Loan Balance $ ___________________ $ ___________________
Beginning of Month Cash Balance $ ___________________ $ ___________________
Add: Collections from Customers
Cash Sales ___________________ ___________________
Credit Sales ___________________ ___________________
Add: _______________________ ___________________ ___________________
Less: Payment for Merchandise Purchases ___________________ ___________________
Less: _______________________ ___________________ ___________________
Less: _______________________ ___________________ ___________________
Less: _______________________ ___________________ ___________________
Less: _______________________ ___________________ ___________________
Preliminary End of Month Cash Balance ___________________ ___________________
Add: Loan Additions ___________________ ___________________
Less: Loan Payments ___________________ ___________________
End of Month Cash Balance $ ___________________ $ ___________________
End of Month Loan Balance $ ___________________ $ ___________________
Explanation / Answer
Cash collection on sales
Sales month
February
March
April
May
June
July
Never
Cash sales
0
0
22000
28000
0
0
0
April Total(22000)
22000
May Total(28000)
28000
Credit sales
February (80000)
32000
36000
8000
4000
March (96000)
38400
43200
9600
4800
April (88000)
35200
39600
8800
4400
May (112000)
44800
50400
11200
5600
Total collection on credit
32000
74400
86400
94000
59200
11200
18800
Total cash received
32000
74400
108400
122000
59200
11200
18800
Cash payment on merchandise purchase
Purchase month
February
March
April
May
June
July
Never
Februray (60000)
15000
30000
15000
March (90000)
22500
45000
22500
April (120000)
30000
60000
30000
May (70000)
17500
35000
17500
Total payment
15000
52500
90000
100000
65000
17500
0
Equipment purchase
45000
Sale of fixed assets(30000-18000+5000)
17000
Stock purchase
20000
Beginning of month loan balance
31000
77600
Beginning of month cash balance
12000
12000
Add
Collection from customer
Cash sales
22000
28000
Credit sales
86400
94000
Less
Payment of mechandise
-90000
-100000
Less
Equipment purchase
-45000
0
Add
Sales of fixed aseest
0
17000
Less
Stoack purchase
-20000
0
Preleiminery end cash balace
-34600
51000
Add
Loan addition
46600
Less
Loan payment
-39000
End of month cash balance
12000
12000
End of month loan balance
77600
38600
Februray
March
April
May
Sales in units
10000
12000
11000
14000
sales price (100000/10000)
10
10
10
10
Total sales value
100000
120000
110000
140000
Cash sales (1/5)
20000
24000
22000
28000
Credit (4/5)
80000
96000
88000
112000
Merchandise purchase
60000
90000
120000
70000
Cash collection on sales
Sales month
February
March
April
May
June
July
Never
Cash sales
0
0
22000
28000
0
0
0
April Total(22000)
22000
May Total(28000)
28000
Credit sales
February (80000)
32000
36000
8000
4000
March (96000)
38400
43200
9600
4800
April (88000)
35200
39600
8800
4400
May (112000)
44800
50400
11200
5600
Total collection on credit
32000
74400
86400
94000
59200
11200
18800
Total cash received
32000
74400
108400
122000
59200
11200
18800
Cash payment on merchandise purchase
Purchase month
February
March
April
May
June
July
Never
Februray (60000)
15000
30000
15000
March (90000)
22500
45000
22500
April (120000)
30000
60000
30000
May (70000)
17500
35000
17500
Total payment
15000
52500
90000
100000
65000
17500
0
Equipment purchase
45000
Sale of fixed assets(30000-18000+5000)
17000
Stock purchase
20000
Beginning of month loan balance
31000
77600
Beginning of month cash balance
12000
12000
Add
Collection from customer
Cash sales
22000
28000
Credit sales
86400
94000
Less
Payment of mechandise
-90000
-100000
Less
Equipment purchase
-45000
0
Add
Sales of fixed aseest
0
17000
Less
Stoack purchase
-20000
0
Preleiminery end cash balace
-34600
51000
Add
Loan addition
46600
Less
Loan payment
-39000
End of month cash balance
12000
12000
End of month loan balance
77600
38600
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