7-6 Cash Budget The Peoria Supply Company sells for $50 one product that it purc

Question

7-6

Cash Budget
The Peoria Supply Company sells for $50 one product that it purchases for $40. Budgeted sales in total dollars for next year are $720,000. The sales information needed for preparing the July budget follows:

Account balances at July 1 include these:

The company pays for one-half of its purchases in the month of purchase and the remainder in the following month. End-of-month inventory must be 50 percent of the budgeted sales in units for the next month. A 2 percent cash discount on sales is allowed if payment is made during the month of sale. Experience indicates that 50 percent of the billings will be collected during the month of sale, 40 percent in the following month, 8 percent in the second following month, and 2 percent will be uncollectible. Total budgeted selling and administrative expenses (excluding bad debts) for the fiscal year are estimated at $180,000 , of which one-half is fixed expense (inclusive of a $20,000 annual depreciation charge). Fixed expenses are incurred evenly during the year. The other selling and administrative expenses vary with sales. Expenses are paid during the month incurred. (Round your answers to the nearest whole number.)

(a) Prepare a schedule of estimated cash collections for July.

(b) Prepare a schedule of estimated July cash payments for purchases.

(c) Prepare schedules of July selling and administrative expenses, separately identifying those requiring cash disbursements.

(d) Prepare a cash budget in summary form for July.

Explanation / Answer

May June July August Sales Revenue 30000 40000 48000 50000 Sales Price 50 50 50 50 No units Sold 600 800 960 1000 Current month's sales 48000*.50*.98 23520 Previous month's sales 40000*.40 16000 Two months' prior sales 30000*.08 2400 Total cash collections 41920 MERCHANDISE PURCHASES BUDGET: Budgeted unit sales 960 Add desired ending inventory     40% of Nest month sales 500 Total needs 1460 Less beginning inventory 16000/40 400 Required purchases 1060 Cost of purchases @ $40 per unit 42400 Current month's purchases 42400*.50 21200 Beginning accounts payable 13000 Total cash payments 34200 Selling and administrative expenses: Total Total Fixed 90000/12 7500 Cash payment Less Depreication (90000-20000)/12 5833 Variable 90000/14400 * 960 (720000/50 =14400) 600 600 Total expenses and cash disbursements 6433 Peoria Supply Company Cash Budget Cash receipts 41920 Cash disbursements: Merchandise 34200 Selling and administrative 6433 40633 Excess receipts 1287

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