Reference no: EM132565456

Master products, a rapidly growing distributor of home gardening equipment, which has a policy of developing budget on monthly basis, is formulating its plan for the month of May-2017.Recent and estimated Sales data is given below.

March....................... $ 1,500,000

April .......................... 1,250,000

May.............................. 1,000,000

June.............................. 950,000

• 30% of Sales are on cash, company past experience suggest credit sales are collected 40% in the month of sales, 30% in the second month following the month of sales and 25% in the third month following the month of sales. Grow master's offers a discount of 10% for all customers making payment within first 30 days of sales and all customers are availing discount.
• Master's Gross margin estimated to be 30% of sales; the company wants to have inventory on hand equals to 70% of next month of sales. All purchases are made on account, with 60% paid in the month of purchase and 40% in the following month.
• Administrative and marketing expenses are estimated to be $ 574,000 (including $ 55,000 depreciation and bad debts amounting .......?.
• The company is also planning to purchase equipment worth $ 300,000 and to pay dividends amounting $20,000.
• Master is also planning to sell some of its investments in stock that is expected to generate a cash amounting $ 300,000.
• Master maintains a minimum cash balance of $ 60,000 at the end of month, whenever company fell short of this balance, it can borrow money from the bank in multiples of $1,000 and at an interest rate of 12% per month applicable for both month in which the fund is borrowed and paid, interest is paid along with principal. Last month company fell short of this limit and had to borrow $ 15,000 from bank. Cash balance at the beginning of May is $ 60,000.

Required:

Question 1: Prepare cash budget for the month of May-2017