Problem 9-24 Trish Morrow owns and operates Yummy Bakery which sells a wide vari

Question

Problem 9-24 Trish Morrow owns and operates Yummy Bakery which sells a wide variety of cupcakes. She has compiled the following data and information in order to put together a cash budget for September and October .Budgeted sales for September are 65,000 cupcakes and 98,000 in October. Each cupcake sells for $3.50 .On average 60 percent are cash sales and 40 percent are sold on account. .The company expects to collect 75 percent of credit sales in the month of the sale and 20 percent in the month after the sale All necessary raw materials are purchased on account. Purchases are paid 85 percent in the month of the purchase and 15 percent in the following month. Purchases for September are estimated to be $200,000 and $290,000 in October. .Monthly expenses include: Wages $10,000 Rent $4,000 Utilities $3,500 Insurance $2,500 .Advertising $2,290 Cash balance on September 1st was $6,000. The company has a policy to maintain a minimum cash balance of $5,000. If necessary the company will borrow to meet its short-term needs. All borrowing is done at the beginning of the month and all payments on principal and interest are made at the end of the next month. The annual interest rate is 7%. The company must borrow in multiples of $1,000 . August sales were 43,000 cupcakes and raw materials purchased equal $230,000 Prepare a cash budget for September and October. Enter all amounts as positive numbers.

Explanation / Answer

Solution:

Computation of cash collection for sales Particulars September October Total Sales $227,500.00 $343,000.00 Collections: Cash sales $136,500.00 $205,800.00 Collection for August Credit Sales $12,040.00 Collection for September Credit Sales $68,250.00 $18,200.00 Collection for October Credit Sales $102,900.00 Total Expected cash collection $216,790.00 $326,900.00

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