Reference no: EM132967312

Question:

Brockbank Builders Lid is preparing a cash budget for May and June of 2017. Past records reveal that 20% of all credit sales are collected during the month of sale, 60% in the month following the sale and the balance remaining in the second month following the sale.

The company pays for 75% of purchases in the month after purchase, and the balance is paid in the month following that.

Selling expenses amount to $6,600 per month. Administrative expenses are estimated to be $13,200 per month, which includes $4,800 of depreciation expense. Finance expenses are $1,200 per month. All selling and distribution, administrative, and finance and other expenses (except depreciation) are paid for when incurred.

It is planned to purchase equipment during May 2017 at a cost of $8,500. A $15,000 loan payable will be repaid during June 2017. The interest due at maturity will be $2,650. The company's expected Cash at Bank balance at 1 May 2017 is $13,500.

Estimated sales and purchases data are as follows:

2017 Credit Sales Credit Purchases

March 66,000 33,000

April 88,000 65,000

May 60,500 27,500

June 71,500 38,500

Required:

a) Prepare a cash budget for May and June 2017. 

b) Briefly advise if Brockbank Builders Lid will need to obtain additional financing at the end of June 2017. If additional finance is required, recommend two suitable sources of finance.