Best Breath is a retail store selling home oxygen equipment.Best Breath also services home oxygen equipment, for which the company bills customers monthly. Best Breath has budgeted for increases in service revenue of $100 each month due to a recent advertising campaign. The forecast of sales and service revenue for March-June 2018 is as follows: Almost all of the sales revenues of the oxygen equipment are credit card sales; cash sales are negligible. The credit card company deposits 97% of the revenues recorded each day into Best Breath's account overnight. For the servicing of home oxygen equipment, 75% of oxygen services billed each month is collected in the month of the service, and 25% is collected in the month following the service. Data TableSales and Service Revenues Budget March-June 2018MonthExpected Sales RevenueExpected Service RevenueTotal RevenueMarch$ 7,000$4,1002$11,100April9,0004,20013,200May8,6004,30012,900June9,7004,40014,100 Requirements1.Calculate the cash that Best Breath expects to collect in April, May and June 2018 from salesand service revenue. Show calculations for each month.Best Breath has budgeted expenditures for May of $12,200 and requires a minimum cashbalance of $240 at the end of each month. It has a cash balance on May 1 of $200.2.a. Given your answer to requirement 1, will Best Breath need to borrow cash to cover itspayments for May and maintain a minimum cash balance of $240 at the end of May?b. Assume (independently for each situation) that (1) May total revenues might also be 10%lower or that (2) total costs might be 5% higher. Under each of those two scenarios, showthe total net cash for May and the amount Best Breath would have to borrow to cover itscash payments for May and maintain a minimum cash balance of $240 at the end of May.(Again, assume a balance of $200 on May 1.)3.Why do Best Breath's managers prepare a cash budget in addition to the revenue, expenses,and operating income budget? Has preparing the cash budget been helpful? Explain briefly.

Budget refers to the statement prepared based on the estimations to estimate the revenue and…

Answered: Best Breath is a retail store selling…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Best Breath is a retail store selling home oxygen equipment.

Best Breath also services home oxygen equipment, for which the company bills customers monthly. Best Breath has budgeted for increases in service revenue of $100 each month due to a recent advertising campaign. The forecast of sales and service revenue for March-June 2018 is as follows:

Almost all of the sales revenues of the oxygen equipment are credit card sales; cash sales are negligible. The credit card company deposits 97% of the revenues recorded each day into Best Breath's account overnight. For the servicing of home oxygen equipment, 75% of oxygen services billed each month is collected in the month of the service, and 25% is collected in the month following the service.