Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,700 per month, and the rent is $2,700 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $600, but Koehl has agreed to maintain an average bank balance of $5,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.) The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000. Sales Purchases December $170,000 $25,000 January 42,000 25,000 February 56,000 25,000 Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign. Collections and Purchases: December January February Sales (Collections) $ $ $ Purchases $ $ $ Payments for purchases $ $ $ Salaries $ $ $ Rent $ $ $ Taxes $ --- --- Total payments $ $ $ Cash at start of forecast $ --- --- Net cash flow $ $ $ Cumulative cash balance $ $ $ Target cash balance $ $ $ Surplus cash or loans needed $ $ $ Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar.
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.
Cash Budgeting
Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a
Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,700 per month, and the rent is $2,700 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $600, but Koehl has agreed to maintain an average bank balance of $5,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000.
| Sales | Purchases | |||
| December | $170,000 | $25,000 | ||
| January | 42,000 | 25,000 | ||
| February | 56,000 | 25,000 |
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Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.
Collections and Purchases: December January February Sales (Collections) $ $ $ Purchases $ $ $ Payments for purchases $ $ $ Salaries $ $ $ Rent $ $ $ Taxes $ --- --- Total payments $ $ $ Cash at start of forecast $ --- --- Net cash flow $ $ $ Cumulative cash balance $ $ $ Target cash balance $ $ $ Surplus cash or loans needed $ $ $ -
Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar.
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