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Concept explainers
The
preparing the
business to borrow money during this quarter. Extracts from the sales and purchases budgets are
as follows:
| Month | Cash Sales | Sales on Account | Purchases |
| August | $ 85,000.00 | $ 640,000.00 | $ 420,000.00 |
| September | $ 70,000.00 | $ 550,000.00 | $ 550,000.00 |
| October | $ 88,550.00 | $ 600,000.00 | $ 500,000.00 |
| November | $ 77,160.00 | $ 800,000.00 | $ 600,000.00 |
| December | $ 174,870.00 | $ 500,000.00 | $ 450,000.00 |
i) An analysis of the records shows that trade receivables are settled according to the
following credit pattern, in accordance with the credit terms 4/30, n90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
ii) Expected purchases include monthly cash purchases of 5%. All other purchases are on
account. Accounts payable are settled as follows, in accordance with the credit terms –
2/30, n60:
60% in the month in which the inventory is purchased
40% in the following month
iii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be
$1,680,000 per annum, (including
annum) and is settled monthly.
iv) Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.
v) Other operating expenses are expected to be $108,000 per quarter and will be settled
monthly.
vi) In the month of November, an old motor vehicle, which cost $650,000, will be sold to an
employee at a gain of $30,000.
is expected to be $540,000. The employee will be allowed to pay a deposit equal to 60% of
the selling price in November and the balance settled in two equal amounts in December
2021 & January of 2022.
vii) Computer equipment, which is estimated to cost $320,000, will be acquired in November.
The manager has made arrangements with the dealer to make a cash deposit of 50% of the
amount upon signing of the agreement in November, with the balance to be settled in four
equal monthly instalments, starting in December 2021
viii) The management of Miller Merchandising Company has negotiated with a tenant to rent
office space to her beginning November 1. The rental is $624,000 per annum. The first
month’s rent along with one month’s safety deposit is expected to be collected on
November 1. Thereafter, monthly rental income becomes due at the beginning of each
month.
ix)
x) A
mature on October 15, 2021. In order to meet the financial obligations of the business,
management has decided to liquidate the investment upon maturity. On that date quarterly
interest computed at a rate of 5% per annum is also expected to be collected.
xi) The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.
Requirement:
(b) Another team member who is preparing the Budgeted
the same quarter and has asked you to furnish him with the figures for the expected trade
receivables and payables to be included in the statement at December 31, 2021. Is that a
reasonable request? If yes, what should these amounts be?
(c) Upon receipt of the budget the team manager has now informed you that the management
of Miller Merchandising & More have indicated a desire to maintain a minimum cash
balance of $125,000 each month. Based on the budget prepared, will the business be
achieving this desired target? Given that the management does not wish to borrow any
funds from outside sources, suggest three (3) internal strategies that the business may
employ in order to improve the organization’s monthly
explained.
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- Todd Enterprises is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted: Sales. Merchandise purchases Operating expenses: Payroll.. Advertising Rent. Depreciation End of April balances: Cash Bank loan payable. May April $150,000 $157,500 107,000 112,400 13,600 5,400 2,500 7,500 30,000 26,000 14,280 5,700 2,500 7,500 Additional data: (1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000. (2) Purchases are all on credit, with 40% paid in the month of purchase and 60% paid in the following month. (3) Operating expenses are paid in the month they are incurred. (4) A minimum cash balance of $25,000 is required at the end of each month. (5) Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the…arrow_forwardThe management accountant at Miller Merchandising & More, Odail Russell is in the process ofpreparing the cash budget for the business for the fourth quarter of 2021. It is customary for thebusiness to borrow money during this quarter. Extracts from the sales and purchases budgets areas follows:Month cash sales sales on account purchasesAugust $85,000 $640,000 $420,000September $70,000 $550,000 $550,000October $ 88,550 $600,000 $500,000November $77,160 $800,000 $600,000December $174,870 $500,000 $450,000 Expected purchases include monthly cash purchases of 5%. All other purchases are on account. Accounts payable are settled as follows, in accordance with the credit terms –2/30, n60: 60% in the month in which the inventory is purchased40% in the…arrow_forwardEvergreen Furniture, a retailing company, is preparing the cash budget for August. The following inventory information available: Estimated payments in August for purchases in August Estimated purchases for August Estimated cost of goods sold for August Estimated payments in August for purchases in July Estimated payments in August for purchases prior to July Inventories at beginning of August Required: What are the estimated cash disbursements in August? Estimated cash disbursements 70% $ 2,444,000 2,600,000 696,000 176,000 674,000arrow_forward
- Evergreen Furniture, a retailing company, is preparing the cash budget for August. The following inventory information is available: Estimated payments in August for purchases in August Estimated purchases for August Estimated cost of goods sold for August Estimated payments in August for purchases in July Estimated payments in August for purchases prior to July Inventories at beginning of August Required: What are the estimated cash disbursements in August? Estimated cash disbursements 70% $ 2,428,000 2,560,000 672,000 160,000 658,000arrow_forwardGiving questions, Prepare a cash budget for the January and February for the year 2020arrow_forwardPrepare a cash budget for the XYZ Manufacturing Company, indicating receipts and disbursements for May, June, and July. The firm wishes to maintain at all times a minimum cash balance of $50,000. Determine whether or not borrowing will be necessary during the period, and if it is, when and how much. As of April 30, the firm had a balance of $50,000 in cash. Actual Sales Forecasted Sales January $120,000 May $80,000 February 110,000 June 95,000 March 100,000 July 105,000 April 90,000 August 115,000 Accounts receivable: 20% of total sales are for cash. The remaining 80% will be collected 60% during the following months, 30% one more month later, and 10% two more months later (the firm incurs a negligible bad-debt loss.) Cost of goods manufactured: 65% of sales: 80% of this cost is paid the following month and the remaining 20% one more month later. Selling, general, and administrative expenses: $15,000 per month plus 5% of sales. All of these expenses are paid during…arrow_forward
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