Flower Care Limited, a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Flower Care has experienced difficulty in 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 have been assembled:

On July 1, the beginning of the third quarter, the company will have a cash balance of $44,500.

Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account):

May (actual) June (actual) July (budgeted) August (budgeted) September (budgeted)

$250,000 300,000 400,000 600,000 320,000

Past experience shows that 25% of a months sales are collected in the month of sale, 70% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible.

3. Budgeted merchandise purchase and budgeted expenses for the third quarter are given below:

July Merchandise purchases $240,000 Salaries and wages 45,000 Advertising 130,000 Rent payments 9,000 Depreciation 10,000

August $350,000 50,000 145,000 9,000 10,000

September $175,000 40,000 80,000 9,000 10,000

Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $180,000. All other budgeted expenses are paid in the month they incurred.

Equipment costing $10,000 will be purchased for cash during July.

In preparing the cash budget, assume that the $40,000 loan will be made in July and repaid in September. Interest on the loan is 12 percent per annum.

Required:

Prepare a cash budget, by month and in total, for the third quarter.

State your assumption in computing the interest paid.

Flower Care Limited, a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a \\( \\$ 40,000,90 \\)-day loan from its bank to help meet cash requirements during the quarter. Since Flower Care has experienced difficulty in 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 have been assembled: 1. On July 1 , the beginning of the third quarter, the company will have a cash balance of \\( \\$ 44,500 \\). 2. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): Past experience shows that \25 of a month's sales are collected in the month of sale, \70 in the month following sale, and \3 in the second month following sale. The remainder is uncollectible. 3. Budgeted merchandise purchase and budgeted expenses for the third quarter are given below: Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30 , which will be paid during July, total \\( \\$ 180,000 \\). All other budgeted expenses are paid in the month they incurred. 4. Equipment costing \\( \\$ 10,000 \\) will be purchased for cash during July. 5. In preparing the cash budget, assume that the \\( \\$ 40,000 \\) loan will be made in July and repaid in September. Interest on the loan is 12 percent per annum. Required: a. Prepare a cash budget, by month and in total, for the third quarter. b. State your assumption in computing the interest paid. (47 marks) (3 marks) [Total: 50 marks]