Jodie Products Limited is a merchandising company that sells stationery and other school supplies. The company is planning its cash needs for 2014/2015. In the past Jodie Products had to borrow money in order to support peak sales of back-to-school material, which occur during January. The following information has been provided to assist in preparing a cash budget for the period:
|
Budgeted monthly income statement for December 2014 to March 2015
|
|
|
December
|
January
|
February
|
March
|
|
N$
|
N$
|
N$
|
N$
|
|
Sales
|
40 000
|
70 000
|
50 000
|
45 000
|
|
Cost of sales
|
24 000
|
42 000
|
30 000
|
27 000
|
|
Gross margin
|
16 000
|
28 000
|
20 000
|
18 000
|
|
Operating expenses
|
|
|
|
|
|
Selling expenses
|
7 200
|
11 700
|
8 500
|
7 300
|
|
Administrative expenses
|
5 600
|
7 200
|
6 100
|
5 900
|
|
Net income
|
3 200
|
9 100
|
5 400
|
4 800
|
Note the following additional information:
- Administrative expenses include N$2 000 depreciation each month.
- 20 % of sales are cash sales. Credit sales are collected over a three-month period in the ratio of 10% in the month of sale; 70% in the month following sale and 20% in the second month following sale. October sales amounted to N$30 000, and November sales to N$36 000.
- Inventory purchases are paid for within 15 days. Therefore 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month.
- Purchases amount to 75% of the following month's sales.
- Dividends of N$1 000 will be declared and paid in February.
- The cash balance on 30 November was N$8 000. The company must maintain a cash balance of at least N$8 000 at all times.
- The company can borrow cash from the bank as needed. Loans are received in multiples of N$1 000. Interest paid on loans are 15% per annum, payable monthly.
Prepare a cash budget for December, January and February. When will Jodie products be able to repay the loan?