Skolt Products, Inc., is a merchandising company that sells binders, paper, and

Question

Skolt Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Skolt Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter:

a. Budgeted monthly absorption costing income statements for July-October are as follows: Sales Cost of goods sold July August September October $55,000 $85,000 $65,000 $60,000 33,000 51,000 39,000 36,000 Gross margin 22,000 34,000 26,000 24,000 Selling and administrative expenses Selling expense Administrative expense 8,700 13,200 10,000 8,800 7,100 8,700 7,600 7.400 Total selling and administrative expenses 15,800 21,900 7,600 16,200 Net operating income S 6,200 $12,100 8,400 $ 7,800 Includes $2,000 depreciation each month b. Sales are 20% for cash and 80% on credit. C. Credit sales are collected over a three-month period with 10% collected in the month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totaled $45,000, and June sales totaled $51,000 d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $16,200 e. The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $24,750 f. Land costing $6,000 will be purchased in July g. Dividends of $1,400 will be declared and paid in September h. The cash balance on June 30 is $6,000, the company must maintain a cash balance of at least this amount at the end of each month i. The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 2% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter Required 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. (Do not round intermediate calculations.) Skolt Products, Inc Schedule of Expected Cash Collections August September Quarter-Total Cash sales Credit sales May June gust September Total cash collections

Explanation / Answer

Skolit Products Inc. Schedule of expected cash collections July August September Qtr.- Total Total Sales 55000 85000 65000 205000 Cash Sales (20%) 11000 17000 13000 41000 Credit Sales 44000 68000 52000 164000 May 7200 7200 June 28560 8160 36720 July 4400 30800 8800 44000 August 6800 47600 54400 September 5200 5200 Total Cash Collections 150160 215760 191600 557520 Skolit Products Inc. Merchandise Purchase Budget July August September Qtr.- Total Budgeted COGS 33000 51000 39000 123000 (+) Ending Inventory 38250 29250 27000 94500 Total Needs 71250 80250 66000 217500 (-) Opening Inventory 24750 38250 29250 92250 Inventory to purchase 46500 42000 36750 125250 Skolit Products Inc. Schedule of expected cash disbursements July August September Qtr.- Total Accounts payable, june 30 16200 16200 July purchase 23250 23250 46500 August purchase 21000 21000 42000 September purchase 18375 18375 Total cash disbursement 39450 44250 39375 123075

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