Herbal Care Corp. a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled: On July 1, the beginning of the third quarter, the company will have a cash balance of $44,500. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): May (actual)………………$250,000 June (actual) ……………..$300,000 July (budgeted) …………..$400,000 August (budgeted) ………..$600,000 September (budgeted) ……$320,000 Past experience shows that 25% of a month's sales are collected in the month of sale, 70% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: July August September Merchandise purchases $240,000 $350,000 $175,000 Salaries and wages $45,000 $50,000 $40,000 Advertising $130,000 $145,000 $60,000 Rent payments $9,000 $9,000 $9,000 Depreciation $10,000 $10,000 $10,000 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $180,000. 4.Equipment costing $13,000 will be purchased for cash during July. 5. The company needs a minimum cash balance of $25,000 to start each month, the interest rate of loan is 12%. To maintain the cash balance, the company will Borrows on the first day of the month and when the company have enough cash to repays loans and interest, it will pay on the last day of the month.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Herbal Care Corp. a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a
On July 1, the beginning of the third quarter, the company will have a cash balance of $44,500.
Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):
May (actual)………………$250,000
June (actual) ……………..$300,000
July (budgeted) …………..$400,000
August (budgeted) ………..$600,000
September (budgeted) ……$320,000
Past experience shows that 25% of a month's sales are collected in the month of sale, 70% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible.
Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:
|
|
July |
August |
September |
|
Merchandise purchases |
$240,000 |
$350,000 |
$175,000 |
|
Salaries and wages |
$45,000 |
$50,000 |
$40,000 |
|
Advertising |
$130,000 |
$145,000 |
$60,000 |
|
Rent payments |
$9,000 |
$9,000 |
$9,000 |
|
|
$10,000 |
$10,000 |
$10,000 |
Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $180,000.
4.Equipment costing $13,000 will be purchased for cash during July.
5. The company needs a minimum cash balance of $25,000 to start each month, the interest rate of loan is 12%. To maintain the cash balance, the company will Borrows on the first day of the month and when the company have enough cash to repays loans and interest, it will pay on the last day of the month.
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