The management estimates total sales for the period January through June based o

Question

The management estimates total sales for the period January through June based on
actual sales from the immediate past six months. The following assumptions are made:
1. The Sales were $150,000 in January 2018 and then the sales grew by 10% each
month for the first five months (February to June). The sales are expected to grow
by 5% each month thereafter.
2. 50% of the Sales are collected in the same month. 45% of the sales are collected
in the following month and remainder are not collected.
3. The Purchases are 20% of sales and paid in the same month.
4. Wages and Salaries are $10,000 each month and paid in the same month.
5. Depreciation expense is $5,000 each month.
6. An equipment worth $100,000 will be purchased with cash in October.
7. The company’s debt is $50,000 and the company pays coupon payments in June
and December of each year. The coupon rate is 10% per year.
8. Rent Expenses will be $5000 and will be paid at the end of each calendar quarter.
Determine the cash surplus and shortages for each month from July to December.
Provide your analysis.

Explanation / Answer

Statement showing cash budget

Note : Depreciation is non cash expense

Particulars Jan Feb Mar Aprl May June July August Sept Oct Nov Dec Sales 150000 165000 181500 199650 219615 241577 253655 266338 279655 293638 308320 323736 Collection -50% in same month 75000 82500 90750 99825 109808 120788 126828 133169 139827 146819 154160 161868 -45% in following month 67500 74250 81675 89843 98827 108709 114145 119852 125845 132137 138744 Total collection of Sales---(A) 75000 150000 165000 181500 199650 219615 235537 247314 259680 272664 286297 300612 Purchases 30000 33000 36300 39930 43923 48315 50731 53268 55931 58728 61664 64747 Wages and salaries 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000 Purchase of equipment 100000 Interest expense 2500 2500 Rent Expense 5000 5000 5000 5000 Total Cash out flow ------(B) 40000 43000 51300 49930 53923 65815 60731 63268 70931 168728 71664 82247 Cash surplus/shortage ----(A)-(B) 35000 107000 113700 131570 145727 153800 174806 184046 188749 103936 214633 218365

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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