NORTON Catering is a distributor of catering equipment. The company is in the process of putting together its cash budget for the second quarter-April, May, and June of next year. The president of the company suspects that some financing will be required in the second quarter because sales are expanding and the company intends to make several major equipment purchases in that quarter. The president is confident that the company will be able to meet or exceed the following budgeted sales figures next year:

January             $158,000                                  July                  $190,000                                             

February           $160,000                                  August              $192,000

March              $164,000                                  September        $210,000

April                 $172,000                                  October            $230,000

May                 $176,000                                  November        $260,000

June                 $184,000                                  December         $180,000

 

The following additional information will be used in formulating the cash budget:

A) The company collects 30% of its billings in the month after the sale and the remaining 70% in the second month after the sale.

B) The cost of sales is 75% of sales. They order goods one month in advance of their expected sales.

C) Desired ending inventory is kept to a minimum.

D) Half of the purchases made are paid one month after it orders, and the other half paid 2 month after it places the order.

E) Operating expenses other that cost of sales are $178,800 for the year. It includes Salaries of $120,000,advertising $12,000, property taxes $18,000, insurance $4,800, utilities $6,000, Depreciation $18,000.

F) Income tax payments are made by the company in the first month of each quarter based on the taxable income for the prior quarter. The income tax payment due in April is $16,000.

G) Because of expanding sales, the company plans to purchase $22,300 of equipment in April and $29,000 in May. These purchases will not affect depreciation for the year.

H) The end-of-the-month cash balance cannot fall below $20,000.

I) All borrowing is done at the beginning of the month, and all investments and repayments are made at the end of the month. As of March 31^st, there are no investments of excess cash and no outstanding loans.

J) The annual rate on loans from the bank is 12%. (or 1% per month). The company will pay off any loans, including accumulated interest, at the end of the second quarter if sufficient cash is available.

 

REQUIRED

1. 
   
2. Prepare a cash budget by month and in total for the second quarter.
3. 
   
4. Discuss why cash budgeting is particularly important during a period like COVID 19?
5. 
   
6. Prepare another cash budget with a required minimum cash balance of $30,000.(other figures remain the same)
7. 
   
8. Comment on the change from 1) to 3)
9. 
   
10. Refer to the original data. Prepare a new cash budget with sales being lower by 20% for January to December. Assume a minimum cash balance of $20,000.
11. 
    
12. Comment on your finding in 5) and compare your results with 1).
13. 
    
14. How would a minimum desired cash balance of $30 000 instead of $20,000 affect your cash budget. Redo the budget and comment
15. 
    
16. Refer to the original data. How would a decrease in cost of sales from 75% to 60% affect your cash budget. Redo the cash budget with $20,000 minimum cash balance and the original value above for sales
17. 
    
18. Comment on 8.