PART B

T&N Beauty Co$.$ is well known as a distributor of a wide range of personal care products, from

body and facial skin care to decorative cosmetics and perfumes. The company is planning to

improve their current performance in the upcoming year $2024.$ The manager of the marketing

department has proposed the sales budget for $2024$ as below:

Besides that, the company also starts to create the projection for cash flows based on the current

year's sales and $2024$ forecasted sales. Some information will be considered in preparing the

cash budget:

The record shows that T&N Beauty has a great credit policy these years, and the company

is expecting to maintain that good record, as $60\%$ of credit sales will be collected in the

following month after the sale, other remaining will be collected two months after the

sale.

T&N Beauty spends the majority of money on purchasing cosmetics and personal care

products, total cost of goods sold each month is estimated to be $40\%$ of the sale. The

company does not receive all products at once, $70\%$ are received one month prior to the

sale, and the remaining is delivered during the month of the sale.

One month after receiving the purchased products, the business starts paying $75\%$ of the

invoice owed and the remaining is paid in the following month after the first payment.

The business pays salaries and wages for employees each month based on that month's

sales, estimating $30\%$ of the sales.

Other expenses, such as selling and administrative expenses are forecasted to

$$15,620,000$ in $2024.$ Noted that only property taxes are expected to be paid in four

installments at the end of each quarter, all other expenses are paid consistently during the

year. The selling and administrative expense budget information is as below:

T&N Beauty has to pay a $40\%$ income tax at the end of each quarter based on the income

that was earned from the previous quarter. Knowing that in the first quarter of $2024,$ the

income is projected to be $$3,200,000.$

The company decides to keep their usual plan as maintaining a minimum $$500,000$ of

cash balance end of each month. In the case when the balance is less than desired, the

company will borrow to reach enough to this balance and pay all amounts subsequently

in the following month if they have a positive cash balance.

At the beginning of the second quarter, the company has no debt, and the cash balance is

projected to be $$500,000.$

Requirements:

Help T&N Beauty Co$.$ to build their Cash Budget for the second quarter of the year $2024.$

Assuming the company ignore any interest expense.

Why should T&N Beauty Co$.$ build the Cash Budget for the year $2024?($Briefly discuss the

importance of Cash Budget for T&N Beauty Co$.)$