Toyota company has budgeted sales revenues as follows: Past experience indicates

Question

Toyota company has budgeted sales revenues as follows: Past experience indicates that 65% of the credit sales will be collected in the month of sale, 25 % will be collected in the first month following the sale and the remaining 10% will be collected in the following month. Purchases of inventory are all on credit and 30% are paid in the month of purchase and 70% in the month following purchase. Budgeted inventory purchases are: Other cash disbursements budgeted: (a)selling and administrative expenses of $45,000 each month, (b) dividends of $80,000 will be paid in Mareh, and (c) purchase of investments in April for $25,000 cash. The company wishes to maintain a minimum cash balance of $60,000 at the end of each month. The company borrows money from the bank at 7% 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 Mareh l was $60,000. Assume that borrowed money in this case is for one month (ignore interest). Instructions Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory. Prepare a cash budget for the months of Mareh and April.

Explanation / Answer

Toyota Company   Sales Data Jan   Feb Mar Apr Total Sale Revenue                   250,000            430,000           500,000               300,000 Cash Collection Schedule Collection of Cash From Sale of Jan                   162,500              62,500              25,000 Collection of Cash From Sale of Feb            279,500           107,500                  43,000 Collection of Cash From Sale of Mar           325,000               125,000 Collection of Cash From Sale of Apr               195,000 Total Cash collection from sales                   162,500            342,000           457,500               363,000       1,325,000 Purchase of Inventory Jan   Feb Mar Apr Total Purchase details            300,000           250,000               105,000 Cash payment for purchase of inventory -Feb              90,000           210,000 Cash payment for purchase of inventory -Mar              75,000               175,000 Cash payment for purchase of inventory -Apr                  31,500 Total Cash payments Inventory                90,000           285,000               206,500          581,500 Other Cash Payments   Jan   Feb Mar Apr Total Selling & Admin Expenses                   45,000              45,000              45,000                  45,000          180,000 Dividends                80,000 Purchase of Investments                  25,000 Total Expenses                   45,000              45,000           125,000                  70,000          285,000 Cash Budget for March & April Mar Apr Opening Cash              60,000               107,500 Collection from Sales           457,500               363,000 Total Available cash           517,500               470,500 Cash paid for inventory           285,000               206,500 Other Cash Payments           125,000                  70,000 Net Balance before Loan           107,500               194,000 Min Balance desired              60,000                  60,000 Money Borrowed                       -   Loan Repaid                       -   Closing Balance           107,500               194,000

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