Question

You have been asked to prepare a December cash budget for Ashton Company, a distributor of...

You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

The cash balance on December 1 is $53,400.

Actual sales for October and November and expected sales for December are as follows:

October November December
Cash sales $ 77,000 $ 81,200 $ 87,800
Sales on account $ 435,000 $ 538,000 $ 644,000

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% is uncollectible.

Purchases of inventory will total $341,000 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 $165,000, all of which will be paid in December.

Selling and administrative expenses are budgeted at $516,000 for December. Of this amount, $94,900 is for depreciation.

A new web server for the Marketing Department costing $121,500 will be purchased for cash during December, and dividends totaling $13,000 will be paid during the month.

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:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Homework Answers

Answer #1

1

Calculate the expected cash collections for december

Particulars

$

December cash sales

87800

Collections on account

     October sales (435000*18%)

78300

     November sales (538000*60%)

322800

     December sales (644000*20%)

128800

Total cash collections

617700

2

Calculate expected cash disbursements for merchandise purchases for december

Schedule of expected cash disbursements

Particulars

$

November purchase

165000

December purchase (341000*30%)

102300

267300

3

Prepare a cash budget for December

Aston company

cash budget

For the month of december

$

$

Beginning cash Balance

$53,400

Add: collection from customers

617700

Total cash available

$6,71,100

Less cash disbursements

    Payments to suppliers for inventory

267300

    Selling and administrative expense (516000-94900)

421100

    New web server

121500

    Dividends Paid

13000

Total cash disbursements

822900

Excess (deficiecy) of cash available over disbursements

($1,51,800)

Financing:

   Borrowings

171800

    Repayments

    Interest

Total financing

171800

Ending cash Balance

$20,000

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