Kiko Ltd is a family owned Asian grocery business that specialises in selling a
ID: 2544283 • Letter: K
Question
Kiko Ltd is a family owned Asian grocery business that specialises in selling a variety of Japanese products. The company has recently started to receive orders from hotels across the state. It is now 1 October, and Mr Seike, the owner, is very pleased with his growing business. He compiled data on the business’ revenue and purchases for the past three months, and prepared forecasts for the upcoming three months as shown below:
The cash balance on 1 October is $95,000; The following information is also pertinent to Kiko’s cash movements:
20% of all sales per month are for cash, 70% of all credit sales are collected within the month of sale, 20% of credit sales are collected in the month following the sale, 7% of credit sales are collected two months after the sale, and the remaining 3% is deemed uncollectible;
70% of the amount for goods purchased is paid in the month of purchase, with the remaining 30% is paid in the following month;
Wages total $12,000 each month and are paid in the month they are incurred;
Budgeted operating expenses total $22,000 per month, and includes depreciation ($14,000) and rent ($2,500). Rent was prepaid in June for 6 months (up to and including December); and
$1,200 in interest payments are made on October 17th.
Based on the above information, prepare the following for Kiko Ltd:
(a) A schedule of cash receipts for October from sales.
(b) A cash budget for October.
(c) Recommend three options for improving the speed of cash collections from sales to improve the cash position.
Sales Revenue Purchases Actual data: July $35,000 $22,000 August $68,000 $40,000 September $27,000 $16,000 Forecasted data: October $55,000 $29,000 November $46,000 $25,000 December $50,000 $27,000Explanation / Answer
Recommondation - 7% of total credit sales should be received one month after the sale, not after two month after the sale
(A) Cash receipts for October from Sales Pattern of receipt 20% of all sales per month are for cash So, Sales of October - $ 55,000*20% 11,000 70% of all credit sales are collected within the month of sale October credit sales = $ 55,000*80% = 44,000 So, $ 44,000*70% to be received in October 30,800 20% of credit sales are collected in the month following the sale So, 20% of credit sales of September would be recieived in October Credit sales of Sep.= 27,000*80%= 21,600 So, 20% of credit sales of September ($ 21600) would be recieived in October 4,320 7% of credit sales are collected two months after the sale So, 20% of credit sales of July would be recieived in October Credit sales of July.=35000*80%= 28,000 So, 7% of credit sales of July ($ 28000) would be recieived in October 1,960 Cash receipt for October from Sales 48,080 (B) A cash budget for October. Note 1 - Cash receipt for October from Sales 48,080 Note 2 -Cash payments in October of purchase 70% of the amount for goods purchased is paid in the month of purchase So, 70% of October purchase (29000) to be paid in cash in october 20,300 remaining 30% is paid in the following month; So, 30% of purchase of september would be paid in october 30% of $ 16,000 4,800 Cash payments in October of purchase 25,100 `Budgeted opearting expense 22,000 less- Non cash expenses for October " Depreciation (14,000) " Prepaid Rent (2,500) Note 3 -Budgeted opearting expense in Cash 5,500 Note 4 - interest payment for October 1,200 Summary of Cash Budget Opening Balance as on October 1 95,000 Cash receipt for October from Sales (Note 1) 48,080 Cash payments in October of purchase (Note 2) (25,100) Budgeted opearting expense in Cash (Note 3) (5,500) interest payment for October (Note 4) (1,200) wages (12,000) Closing Balance as on October 31 99,280Related Questions
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