You have been asked to prepare a December cash budget for Ashton Company, a dist

Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

The cash balance on December 1 is $51,400.

Actual sales for October and November and expected sales for December are as follows:

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

Purchases of inventory will total $287,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $160,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $501,000 for December. Of this amount, $92,300 is for depreciation.

A new web server for the Marketing Department costing $113,500 will be purchased for cash during December, and dividends totaling $10,000 will be paid during the month.

The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

Calculate the expected cash disbursements for merchandise purchases for December.

October November December Cash sales $ 71,600 $ 80,200 $ 88,600 Sales on account $ 420,000 $ 580,000 $ 652,000

Explanation / Answer

Answer:1

The expected cash collevction for December is as follows:

Answer:2

The expected cash disbursement for merchandise purchases for December is as follows:

Answer:3

The Cash budget for Ashton Company is as follows:

Working Note:

Selling and administrative expenses = Total selling and administrative expenses - Depreciation

= $501000 - $92300

= $408700

Borrowings = Minimum cash balance requirement + Deficiency of cash available over disbursements

= $20000 + $84300

= $104300

Expected Cash collection for December Sales on account (a) % of sales to be collected in December (b) Cash Collection (a x b) December Cash Sales $                      88,600.00 October sales $                4,20,000.00 18% $                      75,600.00 November Sales $                5,80,000.00 60% $                  3,48,000.00 December sales $                6,52,000.00 20% $                  1,30,400.00 Total cash collection $                  6,42,600.00

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