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Hi, I have been trying to solve this for a couple days now and I am unsure if I am doing this correctly. Sam Swartz

Hi, I have been trying to solve this for a couple days now and I am unsure if I am doing this correctly.

Sam Swartz is the founder and majority shareholder of Low Glucose, Inc., a special diet company. Sam started the business in his home a few years ago. For the most part, Sam has been able to manage his company quite well. For the first few years he grew his company, but cash requirements caused by expansion and increased demand for his product has forced Sam to re-think his current day to day planning activities.

More importantly, Sam is considering taking on some investors and/or taking a loan from the bank with which he has been working. He has been somewhat concerned by his lack of cash forecasting. He is convinced that he needs to do some cash budgeting, but has neither the time nor the desire to put serious effort into this project.

- The following information was made available to you from the company records:

Balance Sheet

31-Dec-13

Cash 295,000.00 Accounts Payable 200,000.00
A/R 375,000.00 Accrued Commission 60,000.00
Inventory 190,000.00 Common Stock 600,000.00
Fixed Assets 600,000.00 Retained Earnings 600,000.00
1,460,000.00 1,460,000.00

Other data:

a) All sales are on credit with 30% collected in the month of the sale and 70% in the month after the sale.

b) Cost of sales is 70% of sales.

c) Variable period costs (other than sales commissions, in item d below) are 11% of sales and are paid in the month incurred.

d) Sales commissions apply to all sales and are paid in the month after sales at a rate of 6% of sales.

e) Inventory is maintained at the sales requirements for the next two months

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