Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Natural Company is one of the distributors of natural cosmetics, and it is ready to start the third quarter of its fiscal year, during which
Natural Company is one of the distributors of natural cosmetics, and it is ready to start the third quarter of its fiscal year, during which sales will reach its peak. The following data has been collected:
a. On June 1, the beginning of the third quarter, the company will have a cash balance of $43,000.
B. Below are the actual sales for the last two months and planned sales for the third quarter of the year (all sales are made on account):
May (actual sales) = $360,000
June (actual sales) = $280,000
July (planned sales) = $350,000
August (planned sales) = $420,000
September (planned sales) = $360,000
Past experience has shown that 25% of a month's sales are collected in the month of sale, while 70% are collected in the month following the sale and 2% in the second month following the sale. The remaining amount will be uncollectible.
C. Planned merchandise purchases and planned expenses for the third quarter of the year are shown below:
July:
Merchandise purchases = $170,000
Salaries and administrative wages = $70,000
Advertisements = $80,000
Rent payments = $30,000
Depreciation = $40,000
August:
Merchandise purchases = $155,000
Salaries and administrative wages = $70,000
Advertisements = $80,000
Rent payments = $30,000
Depreciation = $40,000
September:
Merchandise purchases = $165,000
Salaries and administrative wages = $70,000
Advertisements = $80,000
Rent payments = $30,000
Depreciation = $40,000
Merchandise purchases are paid in full within the month following purchase. The total accounts receivable for merchandise purchases on June 30, which will be paid during July, is $160,000.
Dr.. The equipment, costing $250,000, will be purchased in cash during the month of July
Required:
1. Prepare a table of expected cash collections for July, August, and September, and for the three months in general.
2. Based on the cash budget for July, do you believe that the company has sufficient liquidity at the end of each month to face the liquidity risks of subsequent months? Explain this and suggest the appropriate strategy that must be followed to find solutions?
3. The company is always required to maintain a minimum cash balance of 30,000 at the end of each month. If this balance cannot be reached, the company will borrow from a bank. Knowing that the loan will be repaid at the end of the quarter with a total interest of $3,000. Based on the above, complete the cash budget numbers on a monthly and total basis, for the third quarter of the year.
4. Calculate the contribution margin ratio and sales break-even point in dollars for July
5. If in July the company wants to increase profit by $50,000. How much is the company's sales value in dollars supposed to increase to reach the target profit?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started