Cruises, Inc. has budgeted sales revenues as follows: June July August Credit Sa
ID: 2530696 • Letter: C
Question
Cruises, Inc. has budgeted sales revenues as follows: June July August Credit Sales $135,000 $135,000 $90,000 Cash Sales 90,000 225,000 195,000 Total Sales $225,00 $380,000 $285,000 Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.Cash disbursements were $421,000 for July and $250,500 for August.
The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. To maintain the minimum cash balance, if necessary, the company borrows money from the bank at a 6% annual interest rate. Any outstanding loans are repaid in the months when there is an excess cash balance. The beginning cash balance on July 1 was $50,000.
Prepare a cash budget for the months of July and August. Prepare a seperate schedule for expected collections from the customers. Cruises, Inc. has budgeted sales revenues as follows: June July August Credit Sales $135,000 $135,000 $90,000 Cash Sales 90,000 225,000 195,000 Total Sales $225,00 $380,000 $285,000 Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Cash disbursements were $421,000 for July and $250,500 for August.
The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. To maintain the minimum cash balance, if necessary, the company borrows money from the bank at a 6% annual interest rate. Any outstanding loans are repaid in the months when there is an excess cash balance. The beginning cash balance on July 1 was $50,000.
Prepare a cash budget for the months of July and August. Prepare a seperate schedule for expected collections from the customers.
Explanation / Answer
Cruises Inc
Cash Budget for the months of July and August
July
August
Total
Beginning Cash balance
$50,000
$50,000
$100,000
Cash sales
$245,000
$195,000
$440,000
Expected Collections from Customers
$135,000
$108,000
$243,000
Available Cash
$430,000
$353,000
$783,000
Cash disbursements
$421,000
$250,500
$671,500
Excess/(surplus) of available cash over disbursements
$9,000
$102,500
$111,500
Minimum required cash balance
$50,000
$50,000
$100,000
Financing:
Borrowing
$41,000
$41,000
Interest
($205)
($205)
Repayments
($41,000)
($41,000)
Ending Cash Balance
$50,000
$61,295
$111,295
Schedule of Expected Collections from Customers:
July
August
July
August
June Collections, 40% credit sales
$54,000
July Collections
$81,000
$54,000
August Collections, 60% credit sales
$54,000
Total collections
$135,000
$108,000
The total sales for July in the question is given as $380,000. However, the sum of credit sales ($135,000) and cash sales ($225,000) totals to only $360,000. Hence, in the solution we have added the difference $20,000 to cash sales to prepare the cash budget.
Interest calculation –
$41,000 x 6% x 1/12 = $205
Expected cash collections of July credit sales = $135,000 x 60% = $81,000 in the month of July
Expected cash collections of July credit sales in August = $135,000 x 40% = $54,000 in the month of August
Cash Budget for the months of July and August
July
August
Total
Beginning Cash balance
$50,000
$50,000
$100,000
Cash sales
$245,000
$195,000
$440,000
Expected Collections from Customers
$135,000
$108,000
$243,000
Available Cash
$430,000
$353,000
$783,000
Cash disbursements
$421,000
$250,500
$671,500
Excess/(surplus) of available cash over disbursements
$9,000
$102,500
$111,500
Minimum required cash balance
$50,000
$50,000
$100,000
Financing:
Borrowing
$41,000
$41,000
Interest
($205)
($205)
Repayments
($41,000)
($41,000)
Ending Cash Balance
$50,000
$61,295
$111,295
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