Far East Inc., is a merchandising company that sells school supplies. The company is planning its cash needs for the third quarter. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for July-October are as follows: July August September October Sales $36,000 $66,000 $64,000 $41,000 Cost of goods sold 21,000 _39,000 27,000 24,000 Gross margin 15,000 27,000 37,000 17,000 Selling and administrative expenses: Selling expense 6,300 10,500 8,600 8,100 Administrative expense" 3,300 6,300 6,700 6,100 Total selling and administrative expenses 9,600 16,800 15,300 14,200 Net operating income $ 5,400 $10,200 $21,700 $ 2,800 *Includes $1,500 depreciation each month. b. Sales are 20% for cash and 80% on credit. c. Credit sales are collected over a three-month period with 20% collected in the month of sale, 50% in the month following sale, and 30% in the second month following sale. May sales totaled $41,000, and June sales totaled $33,000. d. 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $12,100. e. The company maintains its ending inventory levels at 65% of the cost of the goods sold in the following month. The merchandise inventory at June 30 is $13,650. f. Land costing $4,000 will be purchased in July. g. Dividends of $1,600 will be declared and paid in September. h. The cash balance on June 30 is $3,000; the company must maintain a cash balance of at least this amount at the end of each month. i. The company has an agreement with a local bank that allows it to borrow any amount at the beginning of each month, up to a total loan balance of $40,000. 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.
Far East Inc., is a merchandising company that sells school supplies. The company is planning its cash needs for the third quarter. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for July-October are as follows: July August September October Sales $36,000 $66,000 $64,000 $41,000 Cost of goods sold 21,000 _39,000 27,000 24,000 Gross margin 15,000 27,000 37,000 17,000 Selling and administrative expenses: Selling expense 6,300 10,500 8,600 8,100 Administrative expense" 3,300 6,300 6,700 6,100 Total selling and administrative expenses 9,600 16,800 15,300 14,200 Net operating income $ 5,400 $10,200 $21,700 $ 2,800 *Includes $1,500 depreciation each month. b. Sales are 20% for cash and 80% on credit. c. Credit sales are collected over a three-month period with 20% collected in the month of sale, 50% in the month following sale, and 30% in the second month following sale. May sales totaled $41,000, and June sales totaled $33,000. d. 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $12,100. e. The company maintains its ending inventory levels at 65% of the cost of the goods sold in the following month. The merchandise inventory at June 30 is $13,650. f. Land costing $4,000 will be purchased in July. g. Dividends of $1,600 will be declared and paid in September. h. The cash balance on June 30 is $3,000; the company must maintain a cash balance of at least this amount at the end of each month. i. The company has an agreement with a local bank that allows it to borrow any amount at the beginning of each month, up to a total loan balance of $40,000. 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.
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 5P
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:Far East Inc., is a merchandising company that sells school supplies. The company is
planning its cash needs for the third quarter. The following information has been
assembled to assist in preparing a cash budget for the quarter:
a. Budgeted monthly absorption costing income statements for July-October are as
follows:
July
August
September
October
Sales
$36,000
$66,000
$64,000
$41,000
Cost of goods sold
21,000
_39,000
27,000
24,000
Gross margin
15,000
27,000
37,000
17,000
Selling and administrative expenses:
Selling expense
6,300
10,500
8,600
8,100
Administrative expense"
3,300
6,300
6,700
6,100
Total selling and administrative expenses
9,600
16,800
15,300
14,200
Net operating income
$ 5,400
$10,200
$21,700
$ 2,800
*Includes $1,500 depreciation each month.
b. Sales are 20% for cash and 80% on credit.
c. Credit sales are collected over a three-month period with 20% collected in the
month of sale, 50% in the month following sale, and 30% in the second month
following sale. May sales totaled $41,000, and June sales totaled $33,000.
d. 50% of a month's inventory purchases are paid for in the month of purchase. The
remaining 50% is paid in the following month. Accounts payable for inventory
purchases at June 30 total $12,100.
e. The company maintains its ending inventory levels at 65% of the cost of the goods
sold in the following month. The merchandise inventory at June 30 is $13,650.
f. Land costing $4,000 will be purchased in July.
g. Dividends of $1,600 will be declared and paid in September.
h. The cash balance on June 30 is $3,000; the company must maintain a cash balance
of at least this amount at the end of each month.
i. The company has an agreement with a local bank that allows it to borrow any
amount at the beginning of each month, up to a total loan balance of $40,000. 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.
Transcribed Image Text:Required:
1. Prepare a schedule of expected cash collections for July, August, and September
and for the quarter in total.
2. Prepare the following for merchandise inventory:
a. A merchandise purchases budget for July, August, and September.
b. A schedule of expected cash disbursements for merchandise purchases for July,
August, and September and for the quarter in total.
3. Prepare a cash budget for July, August, and September and for the quarter in total.
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