Question

Herald company, a jacket selling company, prepares its master budget for the year 2020 on a quarterly basis. The budget officer has gathered the following data:

1. Estimated Sales for each quarter is $230,000. All sales are on credit and all sales are collected in the following quarter.

2. Cost of goods sold for each quarter is $100,000.

3. Variable selling and administrative expenses for each jacket are 10% sales commission.

4. Fixed selling and administrative (S&A) expenses for the year are:

Advertising	$60,000
Executive salaries	$110,000
Insurance	$40,000
Depreciation	$20,000
Total fixed S&A expenses	$230,000

5. The company expects to borrow $80,000 on April, 1, 2020. No principal will be repaid during the year; Interest rate at an annual rate of 10% is due quarterly.

6. The company will declare $3,000 dividend in December 2020, which will be paid in January 2021.

The company's expected total cash receipt from sales is $690,000 and expected cash disbursements from manufacturing costs is $90,000 during the year 2020. If the year's beginning balance of cash is $25,000, what is the ending balance of cash in the year 2020?

Answer 1

Cash Budget
Beginning Cash Balance	$25,000
Add: Cash receipts	$690,000
Total Cash Available	$715,000
Less: Cash Disbursements:
Manufacturing	($90,000)
Cost of goods sold ($100,000 * 4 quarters)	($400,000)
Variable selling and administrative expenses ($230,000*4 quarters*10/100)	($92,000)
Fixed selling and administrative expenses:
Advertising	($60,000)
Executive salaries	($110,000)
Insurance	($40,000)
Increase or decrease in cash	($77,000)
Financing:
Borrowings	$80,000
Repayments	$0
Interest	$01
Ending Cash Balance	$3,000