Reference no: EM132805454

Hannah Baker owns and operates Tinapay Inc. which sells a wide variety of cupcakes. She has compiled the following data and information in order to put together a cash budget for September and October.

• Budgeted sales for September are 65,000 cupcakes and 98,000 in October. Each cupcake sells for P3.50.
• On average 60% are cash sales and 40% are sold on account.
• The company expects to collect 75% of credit sales in the month of the sale and 20% in the month after the sale.
• All necessary raw materials are purchased on account. Purchases are paid 85% in the month of the purchase and 15% in the following month. Purchases for September are estimated to be P200,000 and P290,000 in October.

Monthly expenses include:

Wages P10,000

Rent P4,000

Utilities P3,500

Insurance P2,500

Advertising P2,290

• Cash balance on September 1st was P6,000.
• The company has a policy to maintain a minimum cash balance of P5,000. If necessary the company will borrow to meet its short-term needs. All borrowing is done at the beginning of the month and all payments on principal and interest are made at the end of the next month. The annual interest rate is 7%. The company must borrow in multiples of P1,000.
• August sales were 43,000 cupcakes and raw materials purchased equal P230,000.

Problem 1: Make a cash budget for September and October.