Problem:
Victoria Kite, a small Melbourne firm that sells kites on the Web, wants a master budget for the three months beginning January 1, 2008. It desires an ending minimum cash balance of $5000.00 each month. Sales are forecasted at an average wholesale selling price of $8.00 per kite. Merchandise costs average $4.00 per kite. All sales are on credit, payable within 30 days, but experience has shown that 60% of current sales collected in the current month, 30% in the month, and 10% in the month thereafter. Bad debts are negligible. In January, Victoria kite in beginning just-in-time (JIT) deliveries from supplies, which means that purchases will equal expected sales.
On January 1, purchases will cease until inventory decreases full during the following month. Monthly operating costs expenses are as follows:
Wages and Salaries $15,000.00
Insurance 125
depreciation 250
Miscellaneous 2500
Rent
$250.00 month + 10% quarterly sales over $10,000.00
Cash Dividends of $ 15, 000.00 are to be paid quarterly, beginning January 15, and are declared on the fifteenth of the previous month. all operating expenses are paid as incurred, except insurance, depreciation quarterly on the tenth if the following the end if the quarter. The next rent settlement date is January 10.
The company plans to buy some new fixture for $3,000.00 cash in March.
Money can be borrowed and repaid in multiples of $5000.00 at am interest rate 10% per annum.
Management wants to minimize borrowing and repay rapidly. Interest is compounded monthly but paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Compute interest to the nearest dollar, Assets as of December 31,2007
CASH 5,000.00
ACCOUNTS RECEIVABLE 12,500.00
INVENTORY 39,050.00
UNEXPIRED INSURANCE 1,500.00
FIXED ASSETS, NET 12,500.00
70,550.00
Liabilities as of December 31,2007
Accounts payable 35,550.00
Dividends 1,500.00
rent payable 7,800.00
44,850.00
Recent and forecasted sales
October 38,000.00
November 25,000.00
December 25,000.00
January 62,000.00
February 70,000.00
March 38,000.00
April 45,000.00
1 Prepare a master budget including a budgeted income statement, balance sheet, cash budget, and supporting schedules fir the January through March 2008.
2. Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment if the bank loan.