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Glorious Nature Company, a local business with twenty branches in the country has been affected by numerous emerging competitors and is considering shutting down the business for good if the cash flow for the next two months are not showing good prospects. The CEO is asking for a cash budget for May and June 2023 to assist the company's management to consider whether to shut down the business for good. Past records reveal that 20% of all credit sales are collected during the month of sale, 60% in the month following the sale, 10% in the second month following the sale and 10% in the third month following the sale. The company pays for 75% of purchases in the month after purchase, and the balance is paid in the month following that.

Glorious Nature Company, a local business with twenty branches in the country has been affected by numerous emerging competitors and is considering shutting down the business for good if the cash flow for the next two months are not showing good prospects. The CEO is asking for a cash budget for May and June 2023 to assist the company's management to consider whether to shut down the business for good. Past records reveal that 20% of all credit sales are collected during the month of sale, 60% in the month following the sale, 10% in the second month following the sale and 10% in the third month following the sale. The company pays for 75% of purchases in the month after purchase, and the balance is paid in the month following that.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 26P
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QUESTION 1-Compulsory Glorious Nature Company, a local business with twenty branches in the country has been affected by numerous emerging competitors and is considering shutting down the business for good if the cash flow for the next two months are not showing good prospects. The CEO is asking for a cash budget for May and June 2023 to assist the company's management to consider whether to shut down the business for good. Past records reveal that 20% of all credit sales are collected during the month of sale, 60% in the month following the sale, 10% in the second month following the sale and 10% in the third month following the sale. The company pays for 75% of purchases in the month after purchase, and the balance is paid in the month following that. Selling expenses amount to $6,600 per month plus 15% of monthly sales. Administrative expenses are estimated to be at $13,100 per month, which includes $3,800 of depreciation expense. Finance expenses are $1,750 per month. All selling and distribution, administrative, and finance and other expenses are paid for when incurred. The company is also planning to carry out its first retrenchment exercise during May 2023 at a cost of $20,600. A second phase of retrenchment which will cost the company $39,000 will be paid during June 2023. The interest due for bank loans is $1,650 and paid at the end of every quarter of the year. The company's expected Cash at Bank balance on 1 May 2023 is $9,200. Details of Sales and Purchases as follows: Sales $75,000 $66,000 $88,000 $60,500 $71,500 February 2023 March 2023 April 2023 May 2023 June 2023 Purchases $38,500 $33,000 $55,000 $27,500 $38,500
Transcribed Image Text:QUESTION 1-Compulsory Glorious Nature Company, a local business with twenty branches in the country has been affected by numerous emerging competitors and is considering shutting down the business for good if the cash flow for the next two months are not showing good prospects. The CEO is asking for a cash budget for May and June 2023 to assist the company's management to consider whether to shut down the business for good. Past records reveal that 20% of all credit sales are collected during the month of sale, 60% in the month following the sale, 10% in the second month following the sale and 10% in the third month following the sale. The company pays for 75% of purchases in the month after purchase, and the balance is paid in the month following that. Selling expenses amount to $6,600 per month plus 15% of monthly sales. Administrative expenses are estimated to be at $13,100 per month, which includes $3,800 of depreciation expense. Finance expenses are $1,750 per month. All selling and distribution, administrative, and finance and other expenses are paid for when incurred. The company is also planning to carry out its first retrenchment exercise during May 2023 at a cost of $20,600. A second phase of retrenchment which will cost the company $39,000 will be paid during June 2023. The interest due for bank loans is $1,650 and paid at the end of every quarter of the year. The company's expected Cash at Bank balance on 1 May 2023 is $9,200. Details of Sales and Purchases as follows: Sales $75,000 $66,000 $88,000 $60,500 $71,500 February 2023 March 2023 April 2023 May 2023 June 2023 Purchases $38,500 $33,000 $55,000 $27,500 $38,500
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