Question

Halloween Pty Ltd is preparing a cash budget for the first three months of 2016. Relevant...

Halloween Pty Ltd is preparing a cash budget for the first three months of 2016. Relevant estimates for the budget are as follow:

January February March Sales 260,000 300,000 350,000 Materials Purchases 150,000 185,000 220,000 Salaries and Wages 30,000 30,000 35,000 Selling Expenses 14,500 19,000 22,000 Administration Expenses 20,500 24,800 27,600

Additional information: ? All sales are on credit. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. ? 60% of materials purchases are expected to be paid in the month of purchase, and the rest in the following month. ? Administration expense estimate includes $7,000 depreciation of equipment each month. ? Sales in November and December 2015 were $210,000 and $235,000 respectively. ? Materials purchases in November and December 2015 were $100,000 and $125,000 respectively. ? In January, the company expects to receive $4,000 interest from its term deposit. ? In February, the company expects to sell 1,000 of shares for $2.50 per share. ? In March, the company expects to pay $1,500 dividends in cash. ? The company’s manager plans to purchase a new equipment in February for $5,000 cash ? The company’s beginning cash balance was $17,800 in January. REQUIRED: a) Prepare a schedule of receipts from debtors and a cash budget for Halloween Pty Ltd for the three months ending 31 March 2016. ( 5 + 5 = 10 marks) b) As part of its longer term plans, Halloween Pty Ltd is hoping to commence a product reinvention program for one of its core products. The project would require an initial cash commitment of $100,000. The company’s management is hoping to fund this either in February or in March. Does this seem feasible?

please explain in detail

thanks

Homework Answers

Answer #1

a)

Schedule of Receipts from Debtors
January February March Total
Collection of sales for the month of:
November 42000 42000
December 70500 47000 117500
January 130000 78000 52000 260000
February 150000 90000 240000
March 175000 175000
Total receipts 242500 275000 317000 834500
Cash Budget
For the Three Months Ending 31 March 2016
January February March Total
Beginning cash balance 17800 66300 101000 17800
Add cash collections:
Receipts from debtors 242500 275000 317000 834500
Interest on term deposits 4000 4000
Sale proceeds of shares 2500 2500
Total cash collections 246500 277500 317000 841000
Total cash available 264300 343800 418000 858800
Less cash disbursements:
For material purchases 140000 171000 206000 517000
For salaries and wages 30000 30000 35000 95000
For selling expenses 14500 19000 22000 55500
For administration expenses 13500 17800 20600 51900
For dividends 1500 1500
For equipment 5000 5000
Total cash disbursements 198000 242800 285100 725900
Ending cash balance 66300 101000 132900 132900

Working:

Cash disbursements for material purchases:

January February March Total
Payment for purchases in the month of:
December 50000 50000
January 90000 60000 150000
February 111000 74000 185000
March 132000 132000
Total payments 140000 171000 206000 517000

b) Funding the initial cash commitment of $100000 for the product reinvention program in February or March is feasible since the available cash exceeds the expected disbursements by over the required amount of $100000.

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