Whooper plans the following for the upcoming quarter: Month Sales: Oct - $3,000,
ID: 2503384 • Letter: W
Question
Whooper plans the following for the upcoming quarter:
Month Sales: Oct - $3,000,000.00 Nov - $3,450,000.00 Dec-$4,200,000.00
The company projects cash collections a payments as follows:
Sales 10% cash, 30% collected current month, 70% month after sale
Cost of Goods Sold
Variable Cost 36% of sales
Fixed $300,000 per month incl $50,000 depreciation expense
Operating Expense
Variable Selling 10% of sales
Variable Admin 6% of sales
Fixed Selling and Admin expense $80,000 per month incl $10,000 depreciation
Variable costs are paid 70% in month incurred and 30% the following month
Fixed costs are paid monthly as they are incurred
In December an insurance payment of $20,000 is due
Accts Receivable - $860,000 of which $600,000 will be collected in Oct and the remainder in Nov
Accts Payable on Oct 1 is $400,000 and are expected to be paid in Oct
Cash on hand on Oct 1 is $600,000
Minimum cash is $100,000; the company borrows at $100,000 increments at 1% monthly
Prepare a cash budget for the month of October (only) based on the above
Explanation / Answer
Cash on hand on Oct 1 is $600,000
add: receipt of cash
1. accounts receivables 600,000
2. 10% cash sales 300,000
3. 30% of credit sales (.3* 2700,000) 810000
total cash addition : 2310,000
less: cash paid
1. accounts payable: 400,000
2. variable cost (note 1) 1092000
3. fixed cost (300000-50000) 250,000
4. fixed sales & admin cost (80000-10000) 70000
total cash paid: -1812000
cash balance at the end of oct : $498000
note 1. total variable expense: (36+10+6)% of sales = 52% of sales = 1560000
variable expense paid = .7* 1560000 = 1092000
* depreciation is a non cash expense
* the co. need not borrow any fund for this month as balance is above 100,000
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