Question

The company sells many styles of bracelets, but all are sold for the same $10 price.

September (actual)	40,000
October (budget)	70,000
November (budget)	110,000
December (budget)	60,000

Sufficient inventory should be on hand at the end of each month to supply 40% of the bracelets sold in the following month.

Suppliers are paid $4 for each bracelet. Fifty-percent of a month's purchases is paid for in the month of purchase; the other 50% is paid for in the following month. All sales are on credit with no discounts. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses.

Variable expenses:

Sales commissions                         4% of sales

Fixed expenses:

Advertising                                        $220,000

Rent                                                   $20,000

Salaries                                         $110,000

Utilities                                              $10,000

The company plans to purchase $22,000 in new equipment during October and $50,000 in new equipment during November; both purchases will be for cash. The company declares dividends of $20,000 each quarter, payable in the first month of the following quarter.

Other relevant data is given below:

Cash balance as of September 30                       $74,000

Merchandise purchases for September            $200,000

The company maintains a minimum cash balance of at least $50,000 at the end of each month.  

The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. When able, the company will pay the bank all of the accrued interest on the loan and as much of the loan principal as possible while still retaining at least $50,000 in cash.

			October	November	December	Quarter
Cash balance						-
Add collections from customers			-	-	-	-
Total cash available			-	-	-	-
Excess (deficiency) of receipts
over disbursements
Financing:
Borrowings						-
Repayments						-
Interest		1%				-
Total financing			-	-	-	-
Cash balance, ending						53,920

Answer 1