Shower Sales Ltd sells plumbing fittings in a rapidly developing area. Its sales in June
are $500
000. From recent experience, the manager can confidently predict that sales
will increase 10% each month cumulatively. 10% of sales are for cash, 80% are paid for
in the next calendar month and 10% in the following calendar month. Purchases are
$380
000 in
June. The manager decides to keep stock levels high and makes purchases in
any month to the value of 80% of the previous month’s sales. These purchases are paid
for in the next calendar month. Cash operating expenses are $50
000 per month.
Compute a month
ly cash budget for July to December
am confuse with this Question can show the calculation please
To compute the monthly cash budget for Shower Sales Ltd from July to December, we need to calculate various components such as sales, collections, purchases, and payments.
1. Start by calculating the sales for each month:
- Sales in June: $500,000
- Sales in July: 10% increase over June sales = $500,000 * 1.1 = $550,000
- Sales in August: 10% increase over July sales = $550,000 * 1.1 = $605,000
- Sales in September: 10% increase over August sales = $605,000 * 1.1 = $665,500
- Sales in October: 10% increase over September sales = $665,500 * 1.1 = $732,050
- Sales in November: 10% increase over October sales = $732,050 * 1.1 = $805,255
- Sales in December: 10% increase over November sales = $805,255 * 1.1 = $885,780
2. Calculate the collections for each month:
- Cash collections for June sales: 10% of June sales = $500,000 * 0.1 = $50,000 (received in June)
- Collections for July sales: 80% of July sales = $550,000 * 0.8 = $440,000 (received in August)
- Collections for August sales: 80% of August sales = $605,000 * 0.8 = $484,000 (received in September)
- Collections for September sales: 80% of September sales = $665,500 * 0.8 = $532,400 (received in October)
- Collections for October sales: 80% of October sales = $732,050 * 0.8 = $585,640 (received in November)
- Collections for November sales: 80% of November sales = $805,255 * 0.8 = $644,204 (received in December)
- Collections for December sales: 80% of December sales = $885,780 * 0.8 = $708,624 (received in January)
3. Calculate the purchases for each month:
- Purchases in June: $380,000
- Purchases in July: 80% of June sales = $500,000 * 0.8 = $400,000 (paid in August)
- Purchases in August: 80% of July sales = $550,000 * 0.8 = $440,000 (paid in September)
- Purchases in September: 80% of August sales = $605,000 * 0.8 = $484,000 (paid in October)
- Purchases in October: 80% of September sales = $665,500 * 0.8 = $532,400 (paid in November)
- Purchases in November: 80% of October sales = $732,050 * 0.8 = $585,640 (paid in December)
- Purchases in December: 80% of November sales = $805,255 * 0.8 = $644,204 (paid in January)
4. Calculate the cash operating expenses for each month:
- Cash operating expenses are constant at $50,000 per month.
5. Calculate the monthly cash budget for July to December:
- July: ($50,000) - $440,000 (purchases from June) = ($390,000)
- August: $50,000 (cash collections from June sales) - $440,000 (purchases from July) = ($390,000)
- September: $440,000 (collections from July sales) - $484,000 (purchases from August) - $50,000 (operating expenses) = ($94,000)
- October: $484,000 (collections from August sales) - $532,400 (purchases from September) - $50,000 (operating expenses) = ($98,400)
- November: $532,400 (collections from September sales) - $585,640 (purchases from October) - $50,000 (operating expenses) = ($103,240)
- December: $585,640 (collections from October sales) - $644,204 (purchases from November) - $50,000 (operating expenses) = ($108,564)
The monthly cash budget for July to December is as follows:
July: ($390,000)
August: ($390,000)
September: ($94,000)
October: ($98,400)
November: ($103,240)
December: ($108,564)