The Gannon Company has budgeted sales revenues as follows:
|
June
|
July
|
August
|
|
Credit sales
|
$27,000
|
$29,000
|
$18,000
|
|
Cash sales
|
18,000
|
51,000
|
39,000
|
|
Total sales
|
$45,000
|
$80,000
|
$57,000
|
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:
June $60,000
July 50,000
August 21,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $9,500 each month, (b) dividends of $20,700 will be paid in July, and (c) purchase of a computer in August for $6,000 cash.
The company MUST maintain a minimum cash balance of $10,000 at the end of each month. The company borrows money from the bank at 9% per year interest if necessary to maintain the minimum cash balance of $10,000. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $10,000 of which none is borrowed.
Instructions:
Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.