The following information applies to the questions displayed below.] Abacus Comp

Question

The following information applies to the questions displayed below.] Abacus Company sells its product for $200 per unit. Its actual and projected sales follow Units 8,000$1,600,000 2,400 6,000 7,500 4,500 Dollars April (actual) May (actual) June (budgeted) July (budgeted) August (budgeted) 480,000 1,200,000 1,500,000 900,000 All sales are on credit. Recent experience shows that 30% of credit sales is collected in the month of the sale. 40% in the month after the sale, 25% in the second month after the sale, and 5% proves to be uncollectible. The product's purchase price is $110 per unit. All purchases are payable within 12 days. Thus, 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 18% of the next month's unit sales plus a safety stock of 155 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,548,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $87,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $87,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate. On May 31, the loan balance is $46,500, and the company's cash balance is $87,000

Explanation / Answer

Solution:

ABACUS COMPANY Cash Budget June and July June July Beginning cash balance 87,000 315064.25 Cash receipts from customers                 952,000                     600,000 Total available cash              1,039,000                     915,064 Cash disbursements Payments on purchases 547932 735240 Selling and administrative expense 129000 129000 Interest expense 503.75 0 Total disbursements                 677,436                     864,240 Preliminary cash balance 361,564                       50,824 Additional loan from bank 0                 36,175.75 Repayment of loan to bank 46500 0 Ending cash balance 315,064 87,000 Ending cash balance 315,064 87,000

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