4. Cash budgeting Avallone’s Pool Services Co. had sales of $2 million in March

Question

4. Cash budgeting

Avallone’s Pool Services Co. had sales of $2 million in March and $2.2 million in April. Expected sales for the next three months are $2.4 million, $2.5 million, and $2.7 million. Avallone’s has a cash balance of $200,000 on May 1 and does not want its balance to dip below that level. Prepare a cash budget for May, June, and July given the following information:

Of total sales, 30% are for cash, 50% are collected in the month after the sale, and 20% are collected two months after the sale.

Avallone’s has cash receipts from other sources of $100,000 per month.

The firm expects to purchase items for $2 million in each of the next three months. All purchases are paid for in cash.

Avallone’s has fixed cash expenses of $150,000 per month and variable cash expenses equal to 5% of the previous month’s sales.

Avallone’s will pay a cash dividend of $300,000 in June.

The company must make a $250,000 loan payment in June.

Avallone’s plans to acquire fixed assets worth $500,000 in July.

Avallone’s must make a tax payment of $225,000 in June.

Explanation / Answer

Working Note :

Cash Budget May June July Cash Balance as on May 1 200000 Cash Receipts from Sales 720000 1950000 2540000 Cash Receipts from Other Sources 100000 100000 100000 Items Purchase (2000000) (2000000) (2000000) Fixed Cash Expenses 150000 150000 150000 Variable Expenes@5% of Previous Month Sales 110000 120000 125000 Cash Dividend 0 (300000) 0 Loan Payment 0 (250000) Fixed Asset Expense 0 0 (500000) Tax Payment (225000) Total (720000) (455000) 415000 Shortfall 920000 655000

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.