If Hewitt eliminates any cash deficiency by borrowing in $5,000 notes from National Bank, how much will the company need to borrow to cover October’s shortfall?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The
Month Cash Sales on Purchases on
Sales Account Account
August $45,000 $480,000 $400,000
September $60,000 $600,000 $380,000
October $38,000 $720,000 $480,000
November $47,000 $640,000 $500,000
December $51,000 $800,000 $600,000
I. An analysis of the records shows that trade receivables (accounts receivable) are settled according to the following credit pattern, in accordance with the credit terms 10/30, n90:
50% in the month of sale
30% in the first month following the sale
20% in the second month following the sale
II. Accounts payable are settled as follows:
70% in the month in which the inventory is purchased
30% in the following month
The credit terms of the suppliers is 5/30, n60.
III. A motor vehicle costing $350,000 will be purchased and paid for in November 2010.
IV. During December, the management of Hewitt Manufacturing Company expects to sell equipment that cost $450,000 at a gain of $60,000.
V. A
VI. On the advice of their
VII. Fixed operating expenses which accrue evenly throughout the year, are estimated to be $1,800,000 per annum, [including depreciation on property, plant & equipment of $40,000 per month] and are settled monthly.
VIII. Commission and other selling expenses are expected to be $144,000 per quarter and are settled in the month incurred.
IX. Wages and salaries are expected to be $2,880,000 per annum and will be paid monthly.
X. The company is expected to pay rent and property taxes of $50,000 each month.
XI. The cash balance on September 30, 2010 is expected to be an overdraft of $45,000.
Required:
- If Hewitt eliminates any cash deficiency by borrowing in $5,000 notes from National Bank, how much will the company need to borrow to cover October’s shortfall?
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