Reference no: EM133187586
Question - During the annual budget preparation Tobias Jeans Company created a cash budget for the summer months (June, July, August). The company has a line of credit at Bluth Bank. They can borrow up to $150,000 at an annual rate of interest of 10%. They can only borrow in increments of $1,000. So far for the year they have not had to borrow anything from the line of credit, so the outstanding balance on the loan will be zero on May 31. The company's cash balance on May 31, will be $80,000. If they do end up borrowing from the line of credit, they will pay the back as much as possible as soon as they can since interest is charged and must be paid monthly. They do have to maintain a minimum cash balance of $80,000 at the end of each month. If they are below that, they must borrow from the line of credit, but if they are above that they can repay any loan balance with excess cash. Expected monthly collection and disbursement patters are shown below:
*Collections: 45% of the current month's sales budget and 55% of the previous month's sales budget.
*Accounts Payable Disbursements: 30% of the current month's accounts payable budget and 70% of the previous month's accounts payable budget.
*All other disbursements occur in the month in which they are budgeted.
Budget Information
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May
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June
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July
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August
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Sales
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$100,000
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$110,000
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$115,000
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$100,000
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Accounts Payable
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$20,000
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$30,000
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$40,000
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$40,000
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Payroll
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$50,000
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$60,000
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$70,000
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$50,000
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Machine Rent
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$5,000
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$5,000
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$5,000
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$5,000
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Other Disbursements
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$20,000
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$20,000
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$15,000
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$5,000
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Depreciation
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$6,000
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$6,000
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$6,000
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$6,000
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