John Smith, a college student, plans to sell CD players over the internet & by mail order

during the semester to help pay his expenses. He buys the players for $29 & sells them for

$50. If payment by cheque accompanies the mail order (estimated to be 40% of sales), he

gives 10% discount. If customers include a credit card number for either internet or mail 5

order (estimated 30% of sales), they receive 5% discount. The remaining collections are

estimated as follows:

One month following

15%

Two months following

8%

Three months following

5%

Uncollectable

2%

Sales forecast are as follows:

September

150 units

October

250 units

November

350 units

December

450 units

January

Business terminated

John plans to pay his supplier 60% in the month of purchase, and 40% in the following

month. A 5% discount is granted on payments mad

in the month of purchase.

However, John will not be able to take any discounts on the September purchases because

of cashflow constraints. All September purchases will be paid for in October.

John has 50 players on hand (purchased in August and to be paid in September), and plans

to maintain enough end-of-month inventory to meet 60% of the next month's sales. John

also wished to maintain a closing cash balance of $1,500 in the bank once the business

commences in September. The current interest rate on short term loans is 3.5% pa.

Required:

Prepare schedules for monthly budgeted cash receipts (10 marks) & cash disbursements (13

marks) & the cash budget (5 marks). During which month will John need to organise a short

term loan & for how much? (2 marks)