Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 backtoschool 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 July through October are as follows:
July August September October
Sales $ $ $ $
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expense
Administrative expense
Total expenses
Operating income $ $ $ $
Includes $ depreciation each month.
Sales are for cash and on credit.
Credit sales are collected over a threemonth period, with collected in the month of sale, in the month following sale, and in the second month following sale. May sales totalled $ and June sales totalled $
Inventory purchases are paid for within days. Therefore, of a months inventory purchases is paid for in the month of purchase. The remaining is paid in the following month. Accounts payable for inventory purchases at June total $
The company maintains its ending inventory levels at of the cost of the merchandise to be sold in the following month. The merchandise inventory at June is $
Land costing $ will be purchased in July.
Dividends of $ will be declared and paid in September.
The cash balance on June is $; the company must maintain a cash balance of at least this amount at the end of each month.
The company has an agreement with a local bank that allows the company to borrow up to a total loan balance of $ The interest rate on these loans is 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
Required:
Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total.
Prepare the following for merchandise inventory:
a A merchandise purchases budget for July, August, and September.
b A schedule of expected cash disbursements for merchandise purchases for July, August, and September and for the quarter in total.
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.
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