Sunbusters Ltd is a manufacturer and distributor of sunscreen products. It is approachingthe third quarter of the year, during which its peak monthly sales occur. The company isconcerned that it may experience cash shortages during this quarter and has asked the bankfor an overdraft facility to see it through this period. The bank has in turn asked Sunbustersto prepare a cash forecast for the third quarter. In response the company has collected thefollowing information:1. On 1 July, the beginning of the first quarter, the company expects to have £44,500 inits bank account.2. Actual sales for the past two months, and forecast sales for the third quarter, are asfollows:May (actual)£250,000June (actual)£300,000July (forecast)£400,000August (forecast)£600,000September (forecast)£320,000Past experience shows that 25% of any month's sales are for cash, which is collected inthe month of sale. The remainder of the sales are on credit. 70% of total sales arecollected in the month after sale, and 3% of total sales are collected in the second monthfollowing the sale. The remainder is bad debt and is not collectable.Forecast purchases and expenses for the third quarter are given below. Unless statedotherwise, all relevant expenses are paid in the month shown.JulyAugustSeptemberRaw material purchases£240,000£350,000£175,000Salaries and wages£45,000£50,000£40,000Advertising£130,000£145,000£80,000Factory rental£9,000£9,000£9,000Depreciation£10,000£10,000£10,000Raw material purchases are paid in full in the month following purchase. The amountpayable in July in respect of June purchases is expected to be £180,000.3. Equipment costing £10,000 will be purchased for cash in July.Required:A. Prepare a schedule of cash collections for July, August, and SeptemberB. Prepare a cash forecast, by month, for the third quarter

Depreciation is a non-cash expenses, so need to record the item in cash budget.

Answered: Required: A. Prepare a schedule of cash…

Required: A. Prepare a schedule of cash collections for July, August, and September B. Prepare a cash forecast, by month, for the third quarter

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

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