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

January               150,000 February               165,000 March               181,500 April               199,650 May               219,615 June               241,577 Description June July August September October November December Sale revenue               241,577         253,655         266,338          279,655         293,638         308,320        323,736 Credit sale collection- same month-50%               120,788         126,828         133,169          139,827         146,819         154,160        161,868 Credit sale collection- next month-45%         108,709         114,145          119,852         125,845         132,137        138,744 Monthly sale collection         235,537         247,314          259,680         272,664         286,297        300,612 Raw material payment- Same month-20% of sale           50,731           53,268            55,931           58,728           61,664           64,747 Budgeted Receipts         235,537         247,314          259,680         272,664         286,297        300,612 Budgeted Cash payments         (50,731)         (53,268)           (55,931)         (58,728)         (61,664)         (64,747) Wages         (10,000)         (10,000)           (10,000)         (10,000)         (10,000)         (10,000) Equipment       (100,000) Interest           (2,500) Rent            (5,000)            (5,000)             (5,000)            (5,000)            (5,000)           (5,000) Cash Surplus         169,806         179,046          188,749           98,936         209,633        218,365

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