Problem - Hailey's Hats began the month with a bank balance of $10 000. The budgeted sales for March to June are as follows:
|
|
March
|
April
|
May
|
June
|
|
Cash sales
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$14,000
|
$16,500
|
$15,500
|
$17,500
|
|
Sales on account
|
29,000
|
30,000
|
40,000
|
50,000
|
|
Total sales
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$43,000
|
$46,500
|
$55,500
|
$67,500
|
Henrietta has found that she generally collects payment for credit sales over a two-month period. Typically, 70 per cent is collected in the month of sale and the remainder is collected in the next month. Her policy is to purchase inventory each month equivalent to 60 per cent of that month's budgeted sales. She thinks this provides her sufficient inventory levels to manage unanticipated changes in demand. Hailey's Hats pays for inventory purchases in the month following purchase. Selling and administrative expenses are budgeted to be 30 per cent of each month's sales. One-half of the selling and administrative expenses is accounted for by depreciation on Henrietta's manufacturing equipment. The company purchased additional manufacturing equipment in April at a cost of $24 000. Henrietta does not receive a salary, but she does pay herself dividends as company performance allows. The first quarter of the year was very profitable, so Henrietta paid herself a dividend of $12 500 in April. Henrietta wants to maintain a minimum cash balance of $10 000 and has established a line of credit so she can borrow enough money to make up any shortfall. If the company has excess cash on hand at the end of a month (in excess of $10 000), the line of credit will be paid back. Interest on the line of credit will not be paid until the end of the year. (Ignore any interest payments that the company would make on their borrowings.)
Required -
a. Prepare a cash receipts budget for April, May and June.
b. Prepare a cash disbursements budget for April, May and June.
c. Prepare a summary cash budget for April, May and June.