You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise
Question:
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the companys operations:
- The cash balance on December 1 will be $40,000.
- Actual sales for October and November and expected sales for December are as follows:
October | November | December | |||||||||
Cash sales | $ | 65,000 | $ | 69,000 | $ | 83,800 | |||||
Sales on account | 398,000 | 521,000 | 595,000 | ||||||||
Sales on account are collected over a three-month period in the following ratio: 18% collected in the month of sale, 58% collected in the month following sale, and 21% collected in the second month following sale. The remaining 3% are uncollectible.
- Purchases of inventory will total $280,000 for December. 29% of a months inventory purchases are paid during the month of purchase. The accounts payable remaining from Novembers inventory purchases total $161,000, all of which will be paid in December.
- Selling and administrative expenses are budgeted at $429,000 for December. Of this amount, $50,000 is for depreciation. These are paid in the period incurred.
- A new Web server for the Marketing Department costing $75,000 will be purchased for cash during December, and dividends totalling $9,100 will be paid during the month.
- The company must maintain a minimum cash balance of $19,000. An open line of credit is available from the companys bank to bolster the cash position, as needed.
Required:
1. Prepare a schedule of expected cash collections for December.
2. Prepare a schedule of expected cash disbursements for materials during December to suppliers for inventory purchases.
3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month.