The Fraley Company, a merchandising firm, has planned the following sales for the next four months: March April May June Total budgeted sales $50,000 $70,000 $90,000 $60,000

Sales are made 40% for cash and 60% on account. From experience, the company has learned that a month’s sales on account are collected according to the following pattern:

Month of sale 70% First month following month of sale 20% Second month following month of sale 8% Uncollectible 2%

The company requires a minimum cash balance of $4,000 to start a month. Required:
a. Compute the budgeted cash receipts for June.
b. Assume the following budgeted data for June: Purchases $52,000 Selling and administrative expenses $10,000 Depreciation $8,000 Equipment purchases $15,000 Cash balance, beginning of June $6,000

Using this data, along with your answer to part (1) above, prepare a cash budget in good form for June. Clearly show any borrowing needed during the month. The company can borrow in any dollar amount, but will not pay any interest until the following month.

Answer:

a. Cash sales, June: $60,000 × 40% $24,000 Collections on account: June: $60,000 × 60% × 70% 25,200 May: $90,000 × 60% × 20% 10,800 April: $70,000 × 60% × 8% 3,360 Total cash receipts $63,360

b. Cash balance, beginning $ 6,000 Add cash receipts from sales 63,360 Total cash available 69,360 Less disbursements: Purchases 52,000 Selling and administrative 10,000 Equipment purchases 15,000 Total disbursements 77,000 Deficiency of cash (7,640) Financing: Borrowing 11,640 Repayments 0 Interest 0 Total financing 11,640 Cash balance, ending $ 4,000

Iacono Corporation is a wholesaler that sells a single product. Management has provided the following cost