I will include the information (Master Budget) for your review if you need it to determine the answer.
Also, I will include the textbook info so you will know where the Master Budget came from (what information) and to give you a clear background.
7-B1 Prepare Master Budget P. 321-322 in my textbook
Victoria Kite Company, a small Melbourne firm that sells kites on the
Web wants a master budget for the next three months, beginning January
1, 2005. It desires an ending minimum cash balance of $5,000 each month.
Sales are forecasted at an average wholesale selling price of $8.00 per
kite. In January, Victoria Kite is beginning just-in-time (JIT)
deliveries from suppliers, which means that purchases equal expected
On January 1, purchases will cease until inventory reaches $6,000, after
which time purchases will equal sales. Merchandise costs average $4.00
per kite. Purchases during any given month are paid in full during the
following month. All sales are on credit, payable within 30 days, but
experience has shown that 60% of current sales are collected in the
current month, 30% in the next month, and 10% in the month thereafter.
Bad debts are negligible.
Monthly operating expenses are as follows:
Wages and Salaries $15,000
Insurance expired 125
Rent $250/MONTH + 10% of quarterly sales over $10,000
Cash dividends of $1,500 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, and rent.
Rent of $250 is paid at the beginning of each month, and the additional
10% of sales is paid quarterly on the tenth of the month following the
end of the quarter. The next settlement is due January 10.
The company plans to buy some new fixtures for $3,000 cash in March.
Money can be borrowed and repaid in multiples of $500 at the interest
rate of 10% per annum.
Management wants to minimize borrowing and repay rapidly. Interest is
computed and paid when the principal is repaid. Assuming that borrowing
begins at the beginning, and repayments at the end, of the months in
question. Money is never borrowed at the beginning and repaid at the end
of the same month. Compute interest to the nearest dollar.
Assets as of December 31st, 2004
Fixed Assets, net
*November 30th inventory balance=$16,000
Liabilities as of December 31, 2004
Accounts payable (merchandise) $35,550
Recent and forecasted sales:
Here is the question I need help with:
2.Â Â Â Â Â Explain why there is a need for a bank loan and what
operating sources provide the cash for the repayment of the bank loan.Â
This question was asked on Apr 14, 2010.
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