On December 1, 2011, the Itami Wholesale Co. is attempting to project cash receipts and disbursements through January 31, 2012. On this latter date, a note will be payable in the amount of $100,000. This amount was borrowed in September to carry the company through the seasonal peak in November and December.
Selected general ledger balances on December 1 are as follows:
Cash $ 88,000
Inventory 65,200
Accounts payable 136,000
Sales terms call for a 3% discount if payment is made within the first 10 days of the month after sale, with the balance due by the end of the month after sale. Experience has shown that 50% of the billings will be collected within the discount period, 30% by the end of the month after purchase, and 14% in the following month. The remaining 6% will be uncollectible. There are no cash sales. The average selling price of the company’s products is $100 per unit. Actual and projected sales are as follows:
October actual $ 280,000
November actual 320,000
December estimated 330,000
January estimated 250,000
February estimated 240,000
Total estimated for year ending June 30, 2012 $2,400,000
All purchases are payable within 15 days. Approximately 60% of the purchases in a month are paid that month, and the rest the following month. The average unit purchase cost is $80. Target ending inventories are 500 units plus 10% of the next month’s unit sales. Total budgeted marketing, distribution, and customer-service costs for the year are $600,000. Of this amount, $120,000 are considered fixed (and include depreciation of $30,000). The remainder varies with sales. Both fixed and variable marketing, distribution, and customer-service costs are paid as incurred.
Required:
Prepare a cash budget for December 2011 and January 2012. Supply supporting schedules for collections of receivables; payments for merchandise; and marketing, distribution, and customer-service costs.

Answer:

Itami Wholesale Co.

Cash Budget

                                         December       January

Beginning balance             $88,000        $47,190

Cash collections                295,250      265,050

Total cash receipts          $383,250     $312,240

Cash Disbursements:

Note payable                                        $100,000

Payment for purchases  $262,560      222,080

Payment for marketing,

distribution, and

customer-service               73,500        57,500

Total disbursements      $336,060   $375,580

Ending cash balance         $47,190    ($67,340)

Explanation:

a) Data and Calculations:

Inventory beginning balance = $65,200

Accounts payable beginning balance = $136,000

Sales:

50% collected ($ - 3%)

30% second month

14% third month

6% uncollectible

Actual and projected Sales:

                         October   November    December   January    February

Actual sales   $280,000  $320,000

Estimated sales                                      $330,000   $250,000 $240,000

50% collected ($ - 3%)                           $160,050     $121,250   $116,400

30% second month                                   96,000        99,000      75,000

14% third month                                         39,200        44,800      46,200

Total cash collections                           $295,250  $265,050  $237,600

Payment for merchandise:     November   December   January    February        

Ending inventory                           820              830            750           740

Sales in units                              3,200           3,300        2,500        2,400

Units available for sale              4,020            4,130        3,250         3,140

Beginning inventory                      780             820            830           750

Purchases                                  3,240            3,310        2,420        2,390

Cost of purchases             $259,200    $264,800  $193,600   $191,200

Payment:

60% purchase month          155,520       158,880       116,160      114,720

40% the following month                         103,680     105,920      77,440

Total payment for purchases              $262,560   $222,080  $192,160

Budgeted marketing, distribution, and customer-service costs for the year = $600,000

Fixed cost = $120,000

Depreciation = $30,000

Cash payment for fixed cost = $90,000

Monthly payment for fixed cost = $7,500

Variable cost for the year = $480,000 ($600,000 - $120,000)

December = $330,000/$2,400,000 * $480,000 = $66,000

January = $250,000/$2,400,000 * $480,000 = $50,000

                                       December      January

Fixed cost payment         $7,500          $7,500

Variable cost payment    66,000         50,000

Total cash payment      $73,500        $57,500

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January 4500 165 8600 68 25778 7160
February 4452 120 8600 75 29664 8240
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