Reference no: EM132902813
Question - Sebastian the manager of Ariel's Treasures Limited has provided you with the forecasted income statement for the second quarter of 2021:
|
|
April
|
May
|
June
|
Total
|
|
Sales
|
$54,000
|
$49,000
|
$62,000
|
$165,000
|
|
Cost of goods sold
|
24,300
|
22,500
|
28,200
|
75,000
|
|
Gross profit
|
29,700
|
26,500
|
33,800
|
90,000
|
|
Selling & administrative expense:
|
|
|
|
|
|
Selling expenses
|
6,000
|
7,800
|
9,200
|
23,000
|
|
Administrative expenses
|
6,500
|
9,300
|
7,600
|
23,400
|
|
Total expenses
|
12,500
|
17,100
|
16,800
|
46,400
|
|
Operating income
|
$17,200
|
$9,400
|
$17,000
|
$43,600
|
The following information has also been provided:
- Sales are 30% cash and 70% on credit
- Credit sales are collected 50% in month of sale, 30% in month following sale, 15% in the second month following the sale & 5% are never collected.
- The company maintains inventory levels of 40% of the following month cost of goods sold. July's cost of goods sold is estimated to be $25,000.
- Inventory purchases are paid 50% in month of purchase & 50% in the following month. May's purchases are budgeted to be $24,780.
- The cash balance at May 31, 2021 is expected to be $10,000. The company wants to maintain a cash balance of at least $10,000 at the end of each month.
- Dividends of $1,000 are to be paid in June 2021.
- The company plans to purchase equipment of $10,000 in May & $20,000 in June.
- The company has a line of credit with the local bank that allows them to borrow up to $50,000. The interest rate is 5% and the balance of the loan at May 30, 2021 is expected to be $0.
- The administrative expense includes $1,500 of depreciation each month.
Required - Prepare a cash budget for June 2021 with explanation.