Sales are 60% for cash and 40% on credit. Credit sales are collected in the mont

Question

  

  

  

  

Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

Monthly expenses are as follows: commissions, 12% of sales; rent, $3,600 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $855 per month (includes depreciation on new assets).

Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

  

        

Complete the following:

      

       

Complete the following cash budget: (Borrow and repay in increments of $1,000. Cash deficiency, repayments and interest should be indicated by a minus sign.)

     

Prepare an absorption costing income statement for the quarter ended June 30.

        

Question 23: The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Explanation / Answer

a) Sale budget April May June Total Total sales 79000 84000 109000 272000 Cash sales 60% 47400 50400 65400 163200 Credit sales 40% 31600 33600 43600 108800 B) Cash collection April May June Total Cash sales 47400 50400 65400 163200 For March month 25200 25200 For April month 31600 31600 For May month 33600 33600 Total 72600 82000 99000 253600 April May June July Sales 79000 84000 109000 48000 Cost of goods sold 75% 59250 63000 81750 36000 c) Production budget April May June Total Cost of goods sold 59,250 63,000 81,750 2,04,000 Add ending inventory 50,400 65,400 28,800 28,800 Inventory needed 1,09,650 1,28,400 1,10,550 2,32,800 Less beginning inventory 47,400 50,400 65,400 47,400 Purchase 62,250 78,000 45,150 1,85,400 d) Cash Disbursement April May June Total March purchase 28425 28425 April purchase 31125 31125 62250 May purchase 39000 39000 78000 June purchase 22575 22575 Total disbursements 59550 70125 61575 191250 Cash budget April May June Quarter Beginning cash balance 8,800 4,230 4,385 8,800 Add Cash collections 72600 82000 99000 253600 Total collections 81,400 86,230 1,03,385 2,62,400 Less Cash disbursements Payment of material 59550 70125 61575 191250 Sales commission 12 % of sales 9480 10080 13080 32640 Other expense 6% of sales 4740 5040 6540 16320 Rent 3600 3600 3600 10800 Equipment 2800 2800 Total payments 80170 88845 84795 253810 cash balance 1,230 -2,615 18,590 8,590 Financing Loan taken 3000 7000 10000 Loan repaid 10000 10000 Interest paid 230 230 Ending cash balance 4,230 4,385 8,360 8,360

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