Reference no: EM133033358
Question - 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:
1. The cash balance on December 1 is $56,600.
2. Actual sales for October and November and expected sales for December are as follows:
|
|
October
|
November
|
December
|
|
Cash sales
|
$71,200
|
$73,400
|
$86,200
|
|
Sales on account
|
$440,000
|
$576,000
|
$639,000
|
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.
1. Purchases of inventory will total $315,000 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 $181,500, all of which will be paid in December.
2. Selling and administrative expenses are budgeted at $522,000 for December. Of this amount, $74,100 is for depreciation.
3. A new web server for the Marketing Department costing $103,500 will be purchased for cash during December, and dividends totaling $10,000 will be paid during the month.
4. 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.