Reference no: EM132977639

Question - Fatt Choy Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $360,000 for November, $330,000 for December, and $320,000 for January.

Cash collections from sales are expected to be 60% in the month of sale and 36% in the month following the sale. 4% of the sales is uncollectible.

The cost of goods sold is 45% of sales.

The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase.

The company's operating expenses are estimated to be 40% of sales and are paid as incurred.

The company has to pay a dividend of $100,000 in Nov.

The November beginning balance in the net accounts receivable account is $250,000, after deduction of uncollectible sales.

The November beginning balance in the accounts payable account is $271,000.

Fatt Choy has a beginning cash balance of 88,000 at November and needs to maintain a minimal cash balance of $30,000.

Required -

(a) Compute a Cash Budget for November and December.

(b) Fatt Choy is planning a capital expenditure of $40,000, the timing of which is dependent on the cash status. State whether Fatt Choy is able to maintain the minimal cash balance for the months of November and December, then recommend and propose which month capital expenditure should be paid.