Daphne Kite Company wants a master budget for the next three months,
beginning January 1, 2008. It desires an ending minimum cash balance of $5,000
each month. Sales are forecasted at an average selling price of $8 per kite. In
January, Daphne Kite is beginning just-in-time deliveries from suppliers, which
means that purchases equal expected sales. The December 31 inventory balance
will be drawn down to $6,000, which will be the desired ending inventory thereafter.
Merchandise costs are $4 per kite. Purchases during any given month are
paid in full during the following month. All sales are on credit, payable within 30

days, but experience has shown that 60 percent of current sales is collected in the
current month, 30 percent in the next month, and 10 percent in the month
thereafter. Bad debts are negligible. |

Cash dividends of $1,500 are to be paid quarterly, beginning January 15,
and are declared on the fifteenth of the previous month. All operating expenses
are paid as incurred, except insurance, amortization, and rent. Rent of $250 is
paid at the beginning of each month and the additional 10 percent of sales is paid
quarterly on the tenth of the month following the quarter. The next settlement
is due January 10.
The company plans to buy some new fixtures for $3,000 cash in March.
Money can be borrowed and repaid in multiples of $500, at an interest
rate of 10 percent per annum. Management wants to minimize borrowing
and repay rapidly. Interest is computed and paid when the principal is repaid.
Assume that borrowing takes place at the beginning, and repayments at the
end, of the months in question. Money is never borrowed at the beginning
and repaid at the end of the same month. Compute interest to the nearest
dollar.

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Wages and salaries $15,000 Insurance expired Amortization Miscellaneous Rent 125 250 2,500/month 250/month + 10% of quarterly sales over $10,000