Managrial accounting
Scott Products Inc. is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Scott Products has had to borrow money during the third quarter to support peak sales of back- to-school materials, which occur during August. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for for July through October are as follows: October July $40, 000 August $70, 000 42, 000 September $50, 000 30, 000 $45, 000 Sales Cost of goods sold 24, 000 27, 000 Gross margin 20, 000 18, 000 16, 000 28, 000 Selling and administrative expenses: Selling expense Administrative expense* 7, 200 11, 700 8, 500 6, 100 7, 300 5, 900 5, 600 7, 200 Total expenses 12, 800 13, 200 18, 900 14, 600 3, 200 5, 400 9, 100 4, 800 Operating income Includes $2,000 depreciation each month. b. Sales are 20% for cash and 80% on credit. c. Credit sales are collected over a three-month period, with 10% collected in the month of sale, 70% in the month following sale, and 20% in the second month following sale. May sales totalled $30,000, and June sales totalled $36,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $11,700 e. The company maintains its ending inventory levels at 75% of the cost of the merchandise to be sold in the following month. The merchandise inventory at June 30 is $18,000. f. Land costing $4,500 will be purchased in July. g.Dividends of $1,000 will be declared and paid in September. h. The cash balance on June 30 is $8,000; the company must maintain a cash balance of at least this amount at the end of each month i. The company has an agreement with a local bank that allows the company to borrow up to a total loan balance of $40,000. The interest rate on these loans is 1% per month . All borrowing is done at the beginning of a month. The company would, as far as it is able, repay the loan at the end of each month. Interest must be paid at the end of each month based on the outstanding loans for that month. There are no loans outstanding as at June 30. 3. Prepare a cash budget for July, August, and September and for the quarter in total. (Round your intermediate calculations and final answers to the nearest whole dollar. Cash deficiency, repayments and interest should be indicated by a minus sign.) Scott Products, Inc. Cash Budget For the Quarter Ended September 30 August July September Quarter Cash balance, beginning 8,000 $ $ 8,000 $ $ 8,000 8,000 Add collections from sales 47,760 59,600 36,160 143,520 Total cash available 44,160 55,760 67,600 151,520 Less disbursements: For inventory purchases 35,250 30,450 30,375 96,075 For selling expenses 7,200 8,500 11,700 27,400 For administrative expenses 5,200 3,600 4,100 12,900 For land 4,500 4,500 For dividends 1,000 1,000 Total disbursements 45,750 52,150 43,975 141,875 Excess (deficiency) of cash available over disbursements (1,590) 3,610 23,625 9,645 Financing: 4,390x 13,980 Borrowings 9,590 (13,980)X (13,980)x Repayment (376)X Interest 0X 0 X (376) Total financing (376) 9,590 4,390 (14,356) $ $ $ Cash balance, ending 8,000 8,000 9,269 9,269 A
