Question 2

Cruises, Inc. has budgeted sales revenues as follows:

June July August

Cash sales 90,000 105,000 195,000

Other cash disbursements budgeted: (a) selling and administrative expenses of RM48,000 each month, (b) dividends of RM103,000 will be paid in July, and (c) purchase of equipment in August for RM27,000 cash.

The company wishes to maintain a minimum cash balance of RM50,000 at the end of each month. The company borrows money from the bank at 6% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was RM50,000. Assume that borrowed money in this case is for one month.

Instructions

Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.