Ryan Richards, controller for Grange Retailers, has assembled the following data
ID: 2484532 • Letter: R
Question
Ryan Richards, controller for Grange Retailers, has assembled the following data to assist in the preparation of a cash budget for the third quarter of 2008. a) May(actual) $100,000. June(actual) $120,000. July(estimated) $90,000. August( estimated) $100,000. September(estimated) $135,000. October(estimated) $110,000 b) Each month, 30 percent of sales are for cash and 70 percent are on credit. The collection patern for cresit sales is 20 percent in the month of sale, 50 percent in the following month, and 30 percent in the second month following the sale. c) Each month, the ending inventory exactly equals 50 percent of the cost of next months sales. The markup on goods is 25 percent of the cost. d) Inventory purchases are paid for in the month following the purchase. e) Recurring monthly expenses are as follows: Salaries and Wages $10,000. Depreciation on plant and equipment $4,000. Utilities $1,000. Other $1,700. f) Property taxes of $15,000 are due and payable on July 15, 2008. g) Advertising fees of $6,000 must be paid on August 20,2008. h) A lease on a new storage facility is scheduled to begin on September 2, 2008. Monthly payments are $5,000. i) The company has a policy to mantain a minimum cash balance of $10,000. If necessary, it will borrow to meet its short term needs. All borrowing is done at the beginning of the month. All payments on principal and interest are made at the end of a month. The annual interest rate is 9 percent. The company must borrow in multiples of $1,000 Prepare a cash budget for each month in the third quarter and for the quarter in total. ( the third quarter begins on July 1.) Provide a supporting schedule of cash collections.
Explanation / Answer
supporting schedule of cash collections
May sales receipt:
$100,000 * 30 percent of sales for cash=$30,000
$100,000 * 70 percent of sales for credit =$70,000
May sales
May =$70,000 * 20/100=$14,000
June=$70,000*50/100=$35,000
July=$70,000*30/100=$21,000
June sales:
June cash $120,000 *30/100=$36,000
June credit $120,000*70/100=$84,000
June for $84,000 *20/100=$16,800
July for $84,000 *50/100=$42,000
August for $84,000 * 30=$25,200
July(estimated) $90,000
July for cash = $90,000 * 30/100=$27,000
July for credit = $90,000 *70/100=$63,000
JUly revenue=$63,000 * 20/100=$12,600
August revenue=$63,000*50/100=$31,500
September=$63,000* 30/100==$18,900
August = $100,000.
$100,000 * 30 percent of sales for cash=$30,000
$100,000 * 70 percent of sales for credit =$70,000
August =$70,000 * 20/100=$14,000
September=$70,000*50/100=$35,000
October=$70,000*30/100=$21,000.
September for $135,000
September for $135,000 for cash 30%=$40,500
September for $135,000 for cash 70%=$94,500
Collections
September $94,500 *20/100=$18,900
October $94,500 * 50/100=$47,250
November $94,500 *30/100=$28,350
October:
$110,000 for cash *30/100=$33,000
$110,000 for credit = $110,000 * 70/100=$77,000
October collections:$77,000*20/100=$15,400
November Collections$$77,000*50/100=$38,500
December Collections $77,000 *30/100=$23,100
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