Question
The Doley Company has planned the following sales for the next three months: Jan Feb Mar Budgeted sales $40,000 $50,000 $70,000 Sales are made 15%
The Doley Company has planned the following sales for the next three months:
Jan Feb Mar
Budgeted sales $40,000 $50,000 $70,000
Sales are made 15% for cash and 85% on account. Sales are collected according to the following pattern:
Month of sale 55%
First month following sale 35%
Second month following sale 7%
Uncollectable 3%
The company requires a minimum cash balance of $5,000. The beginning cash balance in March is budgeted to be $6,000.
The following additional information has been provided for March:
Inventory purchases (all paid in March) $32,000
Operating expenses (all paid in March) $30,000
All other expenses (all paid in March) $5,000
Dividends paid in March $5,000
Machine (purchased and paid for in March) $15,000
Depreciation expense for March (not included above) $7,000
The company can borrow and will not pay interest until April if they do.
The interest rate on borrowing is 6% per year.
Required:
a) Compute the budgeted cash receipts for March. (5 marks)
b) Complete the cash budget for the month of March, including the amount of borrowing required, if any. (5 marks)
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