Account balances as of June 30
Cash $ 20,000
Accounts receivable 15,000
Building and Equipment 200,000
Accounts payable -0-
Recent and forecasted sales
May (actual sales) $ 75,000
June (actual sales) 80,000
July (budgeted sales) 82,000
August (budgeted) 90,000
September (budgeted) 100,000
October (budgeted) 112,000
Sales are 75% cash and 25% on credit. Credit amounts are all collected within the month after sale.
OCC’s gross margin averages 40% of revenues.
Operating expenses – all are paid before the end of the month.
Salaries and wages $8,000 per month plus 5% of revenue as commissions
Rent and property taxes $1,000 per month
Other operating expenses 2% of revenues
Depreciation $1,000 per month
OCC has no minimum inventory requirement. Their policy is to purchase on the 15th of each month the amount needed for the next month’s expected sales.
OCC Is negotiating the purchase of new equipment that will cost $127,000 and be installed in September. Terms are 50% to be paid in August and the rest in September.
The minimum cash balance required is $20,000. If needed, cash is borrowed as of the beginning of the month and all repayments are made when possible at the end of the month. The interest rate charged on these short-term borrowings is 12% per year, payable at the end of the month. Both borrowings and repayments are made in multiples of $1,000. Management does not want to borrow more cash than is necessary for operations.
a. Prepare the following schedules and budgets:
• Cash Receipts
• Cash Disbursements for Purchases
• Cash Disbursements for operating expenses
• Cash Budget (with budgeted financing)
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