Ashton Company, a distributor of exercise equipment, is preparing a cash budget for December. It provided the following information: a. The cash balance on December 1 is $40,000. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October $ 65,000 $ 400,000 November $ 70,000 $ 525,000 December $ 83,000 $ 600,000 S Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% are uncollectible. c. Purchases of inventory will total $280,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $161,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation. e. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required: For December: 1. Calculate the expected cash collections. 2. Calculate the expected cash disbursements for merchandise purchases. 3. Prepare a cash budget. Indicate in the financing section any borrowing needed during the month. Assume any interest will not be paid until the following month.
Ashton Company, a distributor of exercise equipment, is preparing a cash budget for December. It provided the following information: a. The cash balance on December 1 is $40,000. b. Actual sales for October and November and expected sales for December are as follows: Cash sales Sales on account October $ 65,000 $ 400,000 November $ 70,000 $ 525,000 December $ 83,000 $ 600,000 S Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% are uncollectible. c. Purchases of inventory will total $280,000 for December. Thirty percent of a month's inventory purchases are paid during the month of purchase. The accounts payable remaining from November's inventory purchases total $161,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation. e. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to increase its cash balance as needed. Required: For December: 1. Calculate the expected cash collections. 2. Calculate the expected cash disbursements for merchandise purchases. 3. Prepare a cash budget. Indicate in the financing section any borrowing needed during the month. Assume any interest will not be paid until the following month.
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 4P
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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.
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Transcribed Image Text:Ashton Company, a distributor of exercise equipment, is preparing a cash budget for December. It provided the following information:
a. The cash balance on December 1 is $40,000.
b. Actual sales for October and November and expected sales for December are as follows:
Cash sales
Sales on account
October
$ 65,000
$ 400,000
November
$ 70,000
$ 525,000
December*
$ 83,000
$ 600,000
IS
Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the
month following sale, and 18% collected in the second month following sale. The remaining 2% are uncollectible.
c. Purchases of inventory will total $280,000 for December. Thirty percent of a month's inventory purchases are paid during the
month of purchase. The accounts payable remaining from November's inventory purchases total $161,000, all of which will be paid
in December.
d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.
e. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends
totaling $9,000 will be paid during the month.
f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company's bank to
increase its cash balance as needed.
Required:
For December:
1. Calculate the expected cash collections.
2. Calculate the expected cash disbursements for merchandise purchases.
3. Prepare a cash budget. Indicate in the financing section any borrowing needed during the month. Assume any interest will not be
paid until the following month.
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