Question

Khloe Company imports gift items from overseas and sells them to gift shops and department stores throughout the United States. Khloe Company provided the following information:

a. The October 31 balance in the cash account is $53,817.
b. All sales are on account. Sales in September were $950,000 and in October were $1,240,000.
c. November sales are expected to be $2,145,000.
d. In Khloe's experience, 70 percent of sales are collected in the month of sale and 28 percent are collected in the month following sale. The remaining credit sales are uncollectible.
e. Khloe purchases all merchandise on account. Purchases in September were $750,000 and in October were $980,000. November purchases are expected to be $2,000,000 as Khloe prepares for the Christmas buying season. Fifteen percent of purchases are paid in the month of purchase, while the remainder is paid in the month following the purchase month.
f. Khloe Company has nine employees who are paid a total of $48,000 per month. Due to timing issues, about 90 percent of total wages are paid in the month earned and the remaining 10 percent are paid in the following month.
g. Rent for Office and warehouse space is $12,300 paid monthly in cash.
h. Utilities average $6,100 per month and are paid in cash.
e. In November, Khloe expects to pay employment taxes of $6,625.
f. Since Khloe imports product from overseas, customs duty and shipping to the central location
g. Of 30 percent Of current monthly purchase cost must be paid in the month of purchase.
h. Other cash expenses for November are expected to be $41,500.

Required:
a. Prepare a cash budget for Khloe Company for the month of November.
b. What if Khloe faced a customs duty and shipping percentage of 35 percent How would that affect the November cash budget?

Answer 1

Answer:

Khloe Company

a. Khloe Company

Cash Budget for the month of November:

Beginning cash balance          $53,817

Cash collections                   2,269,120

Cash available                   $2,322,937

Cash payments:

Purchases                           $1,133,000

Wages                                       48,000

Rent expense                            12,300

Utilities expense                         6,100

Employment taxes                     6,625

Customs duty and shipping 600,000

Other expenses                       41,500

Total cash payments        $1,847,525

Ending cash balance           $475,412

b) The ending cash balance will be reduced by $100,000 from $475,412 to $375,412, with the total payments increased to $1,947,525.

Explanation:

a) Data and Calculations:

October 31 cash balance = $53,817

                                  September       October     November

Sales on account       $950,000   $1,240,000   $2,145,000

Cash collections:

70% month of sale                                               $1,501,500

28% month following                                              767,620

2% uncollectible

Total cash collections for sales                         $2,269,120

                                  September       October     November

Credit Purchases       $750,000     $980,000   $2,000,000

Cash payments:

15% month of purchase                                         $300,000

85% month following                                               833,000

Total cash payment for purchases                     $1,133,000

                                  September       October     November

Wages Expense          $48,000        $48,000       $48,000

Cash payment for wages:

90% month earned                                                $43,200

10% month following                                                  4,800

Total cash payment for wages                             $48,000

Other monthly cash payments:

Rent expense  $12,300

Utilities expense $61,00

Employment taxes $6,625

Customs duty and shipping = $600,000 ($2,000,000 * 30%)

Other expenses $41,500

If customs duty and shipping were 35%

Customs duty and shipping = $700,000 ($2,000,000 * 35%)