You have just been contracted as a budget consultant by LBJ Company, a distributor of bracelets to various retail outlets across the country. The company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.
You have decided to prepare a cash budget for the upcoming fourth quarter in order to show management the benefits that can be gained from proper cash planning. You have worked with accounting and other areas to gather the information assembled below.
The company sells many styles of bracelets, but all are sold for the same $10 price. Actual sales of bracelets for the last three months and budgeted sales for the next six months follow:
July (actual)20,000
August (actual)26,000
September (actual) 40,000
October (budget) 70,000
November (budget) 110,000
December (budget) 60,000
January (budget) 30,000
February (budget) 28,000
March (budget) 25,000
The concentration of sales in the fourth quarter is due to the Christmas holiday. Sufficient inventory should be on hand at ………………………………… AND SO ON …………………………………………….
REQUIRED:
1. Prepare a cash budget for the three-month period ending December 31. Include the following detailed budgets:
a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
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