Corning Incorporated sells its product for $24 per unit. Its actual and projected sales follow: Units Dollars January (actual) 18,500 $444,000 February (actual) 23,000 552,000 March (budgeted) 19,800 475,200 April (budgeted) 18,950 454,800 May (budgeted) 22,000 528,000 Here is added information about Corning’s operations: All sales are on credit. Recent experience show that 35% of sales are collected in the month of the sale, 45% in the month following the sale, 17% in the second month after the sale, and 3% prove to be uncollectible. The product’s purchase price is $15 per unit. All payments are payable within 21 days. Thus 30% of purchases in any given month are paid for in that month, with the remaining 70% paid for in the following month. The company has a policy to maintain an ending inventory of 20% of the next month’s projected sales plus a safety stock of 100 units. The January 31 and February 28 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $2,456,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $50,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $50,000, the company repays as much of the loan balance as it can without going below the minimum. This loan carries an annual interest rate of 6% (0.5% per month). At February 28, the loan balance is $14,000, and the company’s cash balance is $50,000. In excel prepare a cash budget for March and April, including any loan activity and interest expense. Compute the loan balance at the end of each month.
Corning Incorporated sells its product for $24 per unit. Its actual and projected sales follow:
|
|
Units |
Dollars |
|
January (actual) |
18,500 |
$444,000 |
|
February (actual) |
23,000 |
552,000 |
|
March (budgeted) |
19,800 |
475,200 |
|
April (budgeted) |
18,950 |
454,800 |
|
May (budgeted) |
22,000 |
528,000 |
Here is added information about Corning’s operations:
All sales are on credit. Recent experience show that 35% of sales are collected in the month of the sale, 45% in the month following the sale, 17% in the second month after the sale, and 3% prove to be uncollectible. The product’s purchase price is $15 per unit. All payments are payable within 21 days. Thus 30% of purchases in any given month are paid for in that month, with the remaining 70% paid for in the following month. The company has a policy to maintain an ending inventory of 20% of the next month’s projected sales plus a safety stock of 100 units. The January 31 and February 28 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $2,456,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $50,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $50,000, the company repays as much of the loan balance as it can without going below the minimum. This loan carries an annual interest rate of 6% (0.5% per month). At February 28, the loan balance is $14,000, and the company’s cash balance is $50,000.
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