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Loffa Company, a distributor of facemask, is ready to begin its production. The company is request a RM90,000, 90 day loan. Since the company has
Loffa Company, a distributor of facemask, is ready to begin its production. The company is request a RM90,000, 90 day loan. Since the company has a difficulty in paying off its loan in the past, the loan officer has asked for a cash budget to help determine wether the loan should be made. In response to this request, the following data have been assembled: i. On 1 July, the start of Ioan period, the cash balance will be RM24,000. ii. Actual sales for the last two month and budgeted sales for the third quarter follow (all sales are on account): 4 iii. Past experience shows that 30% of a month's sales are collected in the month of sale, 65% in the month following sale and 3% in the second month following sale. The remainder is uncollectible. iv. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: Merchandise purchases are paid in full during the following month following purchase. Account payable for merchandise purchases on June 30 which will be paid in July total RM175,000. v. In preparing the cash budget, assume that the RM90,000 loan will be made in July and repaid in September. Interest on the loan will total RM2, 500 . Required: A. Prepare a schedule of expected cash collections for July, August and September and for the quarter in total. B. Prepare cash budget by month and in total for the third quarter
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