In the Case 9-23, page 415, chapter 9, the sentence that says “the company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000″….should READ: “the company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $400,000″…..Please make a note of this and let me know your questions!!!
As for the Cash Budget, I’ll start you off with a few of the answers to get you going. If you still have problems, please ask specific questions. These are all answers for April:
Cash balance, beginning. $14,000
Add receipits from customers (part 1b) $230,000
Total cash $244,000
Purchase of Inventory $195,750
Sales commissions $35,000
Salaries and wages $22,000
Dividends paid $12,000
Land purchases $0
Excess (deficiency of receipts over disbursements $(37,750
For the schedule of expected cash collections:
We know from the text that that the February sales was $192,000 so the expected cash collections would be $48K in Feb (192*25%), $96k in March (192*50%) and $48K in April. In March the sales were $224,000 ($8*28,000). The expected cash in March was $56K, in April $112K and in May $56K, etc.
For the budgeted cash disbursements for merchandise purchases:
Purchases are paid 50% in the month of purchase and the remaining 50% in the following month. The ties cost $5 each.
For April, we calculated we need to purchase 44,000 units at a cost of $5 each for a total of $220,000. 50% of that is charged to the April purchases $110,000 and 50% to the May purchases for $110,000.