All sales are on credit. Recent experience shows that 28% of credit sales is col

Question

All sales are on credit. Recent experience shows that 28% of credit sales is collected in the month of the sale, 42% in the month after the sale, 26% in the second month after the sale, and 4% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 11 days. Thus, 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 20% of the next month’s unit sales plus a safety stock of 175 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,572,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $120,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $120,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate. On May 31, the loan balance is $37,000, and the company’s cash balance is $120,000.(Round final answers to the nearest whole dollar.)

rev: 11_19_2013_QC_40413, 10_21_2014_QC_56990

Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month. (Do not round intermediate calculations.)

Explanation / Answer

All sales are on credit. Recent experience shows that 28% of credit sales is col

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