Elswick Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Janus Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter: 1. Budgeted monthly absorption costing income statements for July-October are as follows:- July August September October £40,000 £70,000 Sales £50,000 £45,000 Cost of goods sold 24,000 42,000 30,000 27,000 Gross margin 16,000 28.000 20,000 18,000 Selling and administrative expenses: Selling expense 7,200 11,700 8,500 7,300 Administrative expense* 5,600 7,200 6,100 5,900 14.600 13,200 Total selling and administrative expenses Net operating income 12,800 18,900 £ 3,200 £ 9,100 £ 5,400 £4,800 *Includes £2,000 depreciation each month. 2. Sales are 20% for cash and 80% on credit. 3. Credit sales are collected over three months with 10% collected in the month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totalled £30,000, and June sales totalled £36,000. 4. Inventory purchases are paid for within 15 days. Therefore, 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 on June 30 total £11,700. 5. The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory on June 30 is £18,000. 6. Land costing £4,500 will be purchased in July. Dividends of £1,000 will be declared and paid in September. 7.
Elswick Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Janus Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter: 1. Budgeted monthly absorption costing income statements for July-October are as follows:- July August September October £40,000 £70,000 Sales £50,000 £45,000 Cost of goods sold 24,000 42,000 30,000 27,000 Gross margin 16,000 28.000 20,000 18,000 Selling and administrative expenses: Selling expense 7,200 11,700 8,500 7,300 Administrative expense* 5,600 7,200 6,100 5,900 14.600 13,200 Total selling and administrative expenses Net operating income 12,800 18,900 £ 3,200 £ 9,100 £ 5,400 £4,800 *Includes £2,000 depreciation each month. 2. Sales are 20% for cash and 80% on credit. 3. Credit sales are collected over three months with 10% collected in the month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totalled £30,000, and June sales totalled £36,000. 4. Inventory purchases are paid for within 15 days. Therefore, 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 on June 30 total £11,700. 5. The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory on June 30 is £18,000. 6. Land costing £4,500 will be purchased in July. Dividends of £1,000 will be declared and paid in September. 7.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please show your workings(how to caculate these answers) in a) ,b), and c).
Transcribed Image Text:Elswick Products, Inc., is a merchandising company that sells binders, paper, and other school
supplies. The company is planning its cash needs for the third quarter. In the past, Janus Products
has had to borrow money during the third quarter to support peak sales of back-to-school materials,
which occur during August. The following information has been assembled to assist in preparing a
cash budget for the quarter:
1.
Budgeted monthly absorption costing income statements for July-October are as follows:-
July August
£40,000 £70,000
Sales
September October
£50,000 £45,000
30,000 27,000
Cost of goods sold
24,000 42,000
Gross margin
16,000
28,000
20,000
18,000
Selling and administrative expenses:
Selling expense
7,200 11,700
8,500
7,300
Administrative expense*
6,100 5,900
Total selling and administrative expenses
Net operating income
5,600 7,200
12,800 18,900
£ 3,200 £ 9,100
14.600 13,200
£ 5,400 £4,800
*Includes £2,000 depreciation each month.
2.
Sales are 20% for cash and 80% on credit.
3.
Credit sales are collected over three months with 10% collected in the month of sale, 70%
in the month following sale, and 20% in the second month following sale. May sales totalled
£30,000, and June sales totalled £36,000.
4.
Inventory purchases are paid for within 15 days. Therefore, 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 on June 30 total £11,700.
5.
The company maintains its ending inventory levels at 75% of the cost of the merchandise
to be sold in the following month. The merchandise inventory on June 30 is £18,000.
6.
Land costing £4,500 will be purchased in July.
7.
Dividends of £1,000 will be declared and paid in September.
CONTINUED
Transcribed Image Text:8.
The cash balance on June 30 is £8,000; the company must maintain a cash balance of at
least this amount at the end of each month.
9.
The company has an agreement with a local bank that allows it to borrow in increments of
£1,000 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.
Required:
a)
Prepare a schedule of expected cash collections for July, August, and September and the
quarter in total.
b)
Prepare the following for merchandise inventory:-
i.
A merchandise purchases budget for July, August, and September
ii.
A schedule of expected cash disbursements for merchandise purchases for July,
August, and September and the quarter in total.
c)
Prepare a cash budget for July, August, and September and the quarter in total.
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