Chapter 7, Problem 7PSA

To determine

(1)

Concept introduction:

Money (cash) forecast: Money (cash) acceptance forecast amounts to the outflow and inflow of money (cash) in the forecast period to ascertain the equilibrium of money (cash) commitment.

To prepare:

Table showing cash collected through credit sales (balance due) in June and July.

Answer to Problem 7PSA

Particulars	April $	May $	June $	July $	August $
Collection made	144000	432000	597600	820800	889200

Explanation of Solution

Table of collection through Money(cash)

Particulars	April $	May $	June $	July $	August $
Sales	720000	360000	1080000	900000	684000
Collection made	$\begin{array}{l}720000\times 20\%\\ =144000\end{array}$	$\begin{array}{l}\left(720000\times 50\%\right)+\\ \left(360000\times 20\%\right)\\ =432000\end{array}$	$\begin{array}{l}720000\times 28\%+\\ 360000\times 50\%+\\ 1080000\times 20\%\\ =597600\end{array}$	$\begin{array}{l}360000\times 28\%\\ +1080000\times 50\%\\ +900000\times 20\%\\ =820800\end{array}$	$\begin{array}{l}1080000\times 28\%\\ +900000\times 50\%\\ +684000\times 20\%\\ =889200\end{array}$

To determine

(2)

Concept introduction:

Money (cash) forecast: Money (cash) acceptance forecast amounts to the outflow and inflow of money (cash) in the forecast period to ascertain the equilibrium of money (cash) commitment.

To prepare:

Budget inventory (ending) for April, May, June and July.

Answer to Problem 7PSA

Particulars	April $	May $	June $	July $
Closing inventory	400	1200	1000	760

Explanation of Solution

Computation of forecasted (budgeted) closing stock for April, May, June, and July.

Particulars	April $	May $	June $	July $	August $
Unit	4000	2000	6000	5000	3800
Closing inventory(20*of succeeding month sales)	400	1200	1000	760	-

To determine

(3)

Concept introduction:

Money (cash) forecast: Money (cash) acceptance forecast amounts to the outflow and inflow of money (cash) in the forecast period to ascertain the equilibrium of money (cash) commitment.

To prepare:

Purchase budget for May, June and July.

Answer to Problem 7PSA

Particulars	April $	May $	June $	July $
Units to be bought	4500	2900	5900	4860

Explanation of Solution

Purchase forecast (budget):

Particulars	April $	May $	June $	July $	August $
Units	4000	2000	6000	5000	3800
Less-beginning inventory	-	400	1200	1000	760
Add-ending inventory	400	1200	1000	760	-
Add-stock for safety	100	100	100	100	100
Units to be bought	4500	2900	5900	4860	3140

To determine

(4)

Concept introduction:

Money (cash) forecast: Money (cash) acceptance forecast amounts to the outflow and inflow of money (cash) in the forecast period to ascertain the equilibrium of money (cash) commitment.

To prepare:

Table showing cash payment in June and July.

Answer to Problem 7PSA

Months	June$	July$
Amount	484000	594000

Explanation of Solution

Cash schedule for payment

Particulars	April$	May$	June$	July$	August$
Unit	4000	2000	6000	5000	3800
Price /unit	110	110	110	110	110
Purchase	440000	220000	660000	550000	418000
Amount	$\begin{array}{l}\left(440000\times .60\right)\\ =264000\end{array}$	$\begin{array}{l}\begin{array}{l}440000\times .40\hfill \\ +660000\times .60\hfill \end{array}\\ =308000\end{array}$	$\begin{array}{l}\begin{array}{l}220000\times .40\hfill \\ +660000\times .60\hfill \end{array}\\ =484000\end{array}$	$\begin{array}{l}\begin{array}{l}660000\times .40\hfill \\ +550000\times .60\hfill \end{array}\\ =594000\end{array}$	$\begin{array}{l}\begin{array}{l}550000\times .40\hfill \\ +418000\times .60\hfill \end{array}\\ =470800\end{array}$

To determine

(5)

Concept introduction:

Money (cash) forecast: Money (cash) acceptance forecast amounts to the outflow and inflow of money (cash) in the forecast period to ascertain the equilibrium of money (cash). commitment.

To prepare:

Cash budget for the month of June and July.

Answer to Problem 7PSA

Total of cash in June and July is same i.e. 100000

Explanation of Solution

Cash budget

Particulars	June	July
Cash received	597600	820800
Less-cash paid	660000	550000
Less-expenses for sales	1320000
Amount for loan	1382400	1377488
Less-interest paid amount	-	1658888
Cash	100000	100000

To determine

(6)

Concept introduction:

Money (cash) forecast: Money (cash) acceptance forecast amounts to the outflow and inflow of money (cash) in the forecast period to ascertain the equilibrium of money (cash) commitment.

To discuss:

Reasons that would help the firm manage cash for the month of May.

Answer to Problem 7PSA

If it was known to the company that it required more borrowing in June, i.e., more than $18000 as per the cash budget of the company in May itself, then company would have made less investment in May so that borrowing would have not been required that much in June. Also, the company would have realised its amount receivable from the customer to whom credit sales has been made.

Explanation of Solution

If it was known to the company that it required more borrowing in June, i.e., more than $18000 as per the cash budget of the company in May itself, then the company would have made less investment in May so that the borrowing would have not been required that much in June. Also, the company would have realised its amount receivable from the customer to whom credit sales has been made.