Reference no: EM13901427

Jamaica Me Crazy Products sells coffee in the southern hemisphere. The company is planning its cash needs for the month of July. In the past, Jamaica has had to borrow money during July to purchase inventory in anticipation of peak coffee sales in August. The following information has been assembled to assist in preparing a cash flow forecast for July.

a. July forecast income statement:

Sales                                                                  $40,000

Variable expenses(cost of goods sold)                        24,000

Contribution margin                                                16,000

Fixed selling expense                                               7,200

Fixed administrative expense                                      5,600

Net operating income                                                $3,200

b. Sales are 20% for cash and 80% on credit.

c. Credit sales are collected over a three-month period with 10% collected in the month of sale, 70% in the following month, and 20% in the second month following sale. May sales totaled 30,000 and June sales totaled $36,000.

d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable for inventory purchases at June 30 total $11,700.

e. The company maintains its ending inventory levels at 75% of the cost of the merchandize to be sold in the following month. The merchandize inventory at June 30 is $18,000. August sales are budgeted at $70,000. (See July sales for cost of goods sold percent).

f. Land costing $4,500 will be purchased in July.

g. The cash balance on June 30 is $8,000; the company must maintain a cash balance of at least this amount at the end of each month.

h. The company has an agreement with a local bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, based on the loan balance at the end of each month. There are no loans outstanding at June 30. Assume that interest is paid when the loan is repaid.

i. Fixed administrative expenses include $2,000 per month of depreciation expense.

Required: Prepare a cash flow forecast and appropriate supporting schedules for the month of July.