ACCT 3208 Case Assignment equipment Brown is a new company with no prior experie

Question

ACCT 3208 Case Assignment equipment Brown is a new company with no prior experience with budgeting following information is available for Brown Limited, a merchandiser selling computer Cash balance October 1 is $22,000 Actual sales for August and September and expected sales for October are as follows August $50,000 $400.000 October $30,000 Cash Sales Sales on Account $60,000 $700,000 ' .. Sales on account are collected over a three-month period as follows: 10% collected in the month of sale, 70% collected in the month following sale, and 15%inthe second month following sale. The remaining S% in uncollectible. Purchases of inventory will total S250,000 for October, 40% of a month's inventory 2. . v purchases are paid during the month of purchase. The remaining 60% is paid the month after purchase. No cash discounts are available for inventory purchases. September's purchases totalled $300,000. 3 Selling and administrative expenses are budgeted at $350,000 for October. Of this amount $40,000 is for depreciation. Various capital expenditures costing $125,000 will be purchased for cash during October S.Dividends of $20,000 will be paid during the month 6. The company maintains a minimum cash balance of $20,000. * The Company currently has available an open line ofcredit at its local bank for $100,000. / This open line can be used to bolster the company's cash position as needed Required Prepare a cash budget for October. In the financing section indicate any borrowing that may be needed during the month Provide Brown Limited with your comments on this budget including any limitations Please provide specific comments and advice you think might be necessary based on the projected October cash budget 1. 2. * Case can be done individually or in groups of two. Solutions are limited to two pages one for Quantitative analysis and one for qualitative discussion. Assignments to be handed in in good form (Excel and/or word documents) in class by November 6,2017. Late ssignments will receive a penalty of 1 point per day up to 3 days. After 3 days no will be accepted and students will receive a mark of zero.

Explanation / Answer

Workings:

2.

The cash budjet for October shows a cash deficit of $93,000. Including the minimum cash balace of $20,000 this works out to $113,000, which is beyond the current line of credit available with the company. The company has to look for another line of credit.

The basic factor for the company to act on is to see that the uncollectible portion of receivables is reduced form the resent 5%. 5% is a very high bad debt situation.

The selling and administrative expenses are 72% of the sales for October. This is a very high percentage. The company is advised to look into the expenses included under this head and take necessay stpes to control the same.

  

Cash Budget Beginning cash balance 22000 Collection from customers 620000 Total cash available for disbursement 642000 Disbursements:    For purchases 280000    For S & A Expenses 310000    For capital expenditure 125000    For cash dividend 20000 Tota Disbursements 735000 Cash surplus / (deficit) -93000 Financing: Borrowing 113000 Ending cash balance 20000

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