Question - Supp 2013 Nov Desert Design CC is a merchandising company that sells stationery and other school supplies. The company is planning its cash needs for 2014. In the past Desert Design CC had to borrow money in order to support peak sales of back-to-school material, which occur during January. The following has been provided to assist in preparing a cash budget for the period: Budgeted monthly income statements for December 2013 to March 2014:
December January February March
Sales 60 000 90 000 70 000 65 000
Cost of sales 36 000 54 000 42 000 39 000
Gross margin 24 000 36 000 28 000 26 000
Operating expenses Selling expenses 10 800 16 200 12 040 10 545
Administrative expenses 8 400 9 255 8 540 8 320
Net income 4 800 10 545 7 420 7 135
Note the following additional information:
Administrative expenses include N$2 000 depreciation each month as well as a N$500 monthly provision for accounting fees.
20% of sales are cash sales. Credit sales are collected over a three-month period in the ratio of 10% in the month of sale; 70% in the month following sale and 20% in the second month following sale. October sales amounted to N$50 000, and November sales to N$56 000.
Purchases amount to 75% of the following month's sales.
It is the company's policy that 50% of a month's inventory purchases are paid within the month of purchases.
The remaining 50% is paid the following month.
The cash balance on 30 November was N$25 000. The company must maintain a cash balance of at least N$5 000 at all times.
The company has an open line of credit at the bank. Loans are received in multiples of N$1 000 at the end of the month. Interest paid on loans are 15% per annum, payable monthly. If a loan is required, repayment of the capital portion will commence in March 2014.
Selling and administrative expenses are paid in the month in which they incur.
REQUIRED - Prepare a cash budget for Desert Design CC for the months of December 2013, January, and February 2014.