Use the followinginformation to prepare a cash budget for December.
The cash balance onDecember 1 is $53,400.
Actual sales forOctober and November and expected sales for December are asfollows:
| October | November | December |
| Cashsales | $ | 77,000 | $ | 81,200 | $ | 87,800 |
| Sales onaccount | $ | 435,000 | $ | 538,000 | $ | 644,000 |
|
Sales on account arecollected over a three-month period as follows: 20% collected inthe month of sale, 60% collected in the month following sale, and18% collected in the second month following sale. The remaining 2%is uncollectible.
Purchases of inventorywill total $341,000 for December. Thirty percent of a month’sinventory purchases are paid during the month of purchase. Theaccounts payable remaining from November’s inventory purchasestotal $165,000, all of which will be paid in December.
Selling andadministrative expenses are budgeted at $516,000 for December. Ofthis amount, $94,900 is for depreciation.
A new web server forthe Marketing Department costing $121,500 will be purchased forcash during December, and dividends totaling $13,000 will be paidduring the month.
The company maintainsa minimum cash balance of $20,000. An open line of credit isavailable from the company’s bank to increase its cash balance asneeded.
Required:
Calculate the expectedcash collections for December.
Calculate the expectedcash disbursements for merchandise purchases for December.
Prepare a cash budgetfor December. Indicate in the financing section any borrowing thatwill be needed during the month. Assume that any interest will notbe paid until the following month.
