N3R Care Company, a distributor of herb-based sunscreens, is ready to begin its fourth quarter in which peak sales occur. The company has requested a $94,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since the company has experienced difficulty 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 has been assembled. i. On October 1, the beginning of the fourth quarter, the company will have a cash balance of $71,500. ii. Actual sales for the last two months and budgeted sales for the fourth quarter follow: 300,000 400,000 August (actual).......... September (actual).. October (budgeted).. November (budgeted).. 550,000 .... 600,000 700,000 December (budgeted).. Past experiences show that 50% of a month's sales are cash sales. For credit sales, 50% is collected in the month following the sale, and 40% is collected in the second month following the sale. The remainder is uncollectible. The company must have a cash balance of at least $20,000 to start each month of the quarter. iii. Budgeted inventory purchases and budgeted expenses for the fourth quarter are given below: Inventory Wages Advertising Rent Depreciation October 210,000 240,000 110,000 9,000 10,000 November 330,000 200,000 100,000 9,000 10,000 Required: Prepare the Cash Budget from the information above. December 175,000 147,000 30,000 9,000 10,000 Inventory purchases are paid in full during the month following purchase. Inventory purchased on September 30, totalling $180,000, will be paid in October. iv. Equipment costing $40,000 will be purchased for cash in October. v. In preparing the cash budget, assume that the $94,000 loan will be made on 1st October and repaid on 31st December.
N3R Care Company, a distributor of herb-based sunscreens, is ready to begin its fourth quarter in which peak sales occur. The company has requested a $94,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since the company has experienced difficulty 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 has been assembled. i. On October 1, the beginning of the fourth quarter, the company will have a cash balance of $71,500. ii. Actual sales for the last two months and budgeted sales for the fourth quarter follow: 300,000 400,000 August (actual).......... September (actual).. October (budgeted).. November (budgeted).. 550,000 .... 600,000 700,000 December (budgeted).. Past experiences show that 50% of a month's sales are cash sales. For credit sales, 50% is collected in the month following the sale, and 40% is collected in the second month following the sale. The remainder is uncollectible. The company must have a cash balance of at least $20,000 to start each month of the quarter. iii. Budgeted inventory purchases and budgeted expenses for the fourth quarter are given below: Inventory Wages Advertising Rent Depreciation October 210,000 240,000 110,000 9,000 10,000 November 330,000 200,000 100,000 9,000 10,000 Required: Prepare the Cash Budget from the information above. December 175,000 147,000 30,000 9,000 10,000 Inventory purchases are paid in full during the month following purchase. Inventory purchased on September 30, totalling $180,000, will be paid in October. iv. Equipment costing $40,000 will be purchased for cash in October. v. In preparing the cash budget, assume that the $94,000 loan will be made on 1st October and repaid on 31st December.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:N3R Care Company, a distributor of herb-based sunscreens, is ready to begin its fourth quarter
in which peak sales occur. The company has requested a $94,000, 90-day loan from its bank to
help meet cash requirements during the quarter. Since the company has experienced difficulty
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 has been assembled.
i. On October 1, the beginning of the fourth quarter, the company will have a cash balance
of $71,500.
ii. Actual sales for the last two months and budgeted sales for the fourth quarter follow:
300,000
400,000
August (actual)....
September (actual).
October (budgeted)..
November (budgeted).
December (budgeted)..
*********
Past experiences show that 50% of a month's sales are cash sales. For credit sales, 50% is
collected in the month following the sale, and 40% is collected in the second month following
the sale. The remainder is uncollectible.
The company must have a cash balance of at least $20,000 to start each month of the quarter.
Inventory
Wages
Advertising
Rent
Depreciation
iii. Budgeted inventory purchases and budgeted expenses for the fourth quarter are given
below:
October
210,000
240,000
110,000
550,000
600,000
700,000
9,000
10,000
November
Required:
Prepare the Cash Budget from the information above.
330,000
200,000
100,000
9,000
10,000
December
175,000
147,000
30,000
9,000
10,000
Inventory purchases are paid in full during the month following purchase. Inventory purchased
on September 30, totalling $180,000, will be paid in October.
iv. Equipment costing $40,000 will be purchased for cash in October.
v. In preparing the cash budget, assume that the $94,000 loan will be made on 1st October and
repaid on 31st December.
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