Hello I have a question in my Cost Accounting homework that has me really stuck can you please explain how to get the answer to this problem?
1. The city of Charleston had the following sales of water for the selected months of 2016:
MonthSales
February$50,000
March45,000
April60,000
May42,500
June70,000
July 120,000
All sales are on credit. Historically, 50 percent is collected in the month of sale, 35 percent during
the first month following the sale, and 15 percent in the second month following the sale.
Water purchases by month are as follows:
MonthSales
February $37,500
March33,750
April45,000
May31,875
June52,500
July90,000
Water is purchased in the month of sale. All purchases are paid during the month following the
purchase.
Operating costs are $18,000 and everything is paid in cash except for depreciation, which
totals $8,000 a month.
The city plans on purchasing some new equipment in May for $25,000 in exchange for a
note payable.
The April 1 cash balance is expected to be the minimum balance of $5,000.
Money can be borrowed from a local bank in increments of $1,000. (Do not include interest
charges in your budget.)
Required:
Prepare a cash budget for April, May, and June. (Check figures: ending cash balance for April,
May and June are $14,500, $8,500 and $22,500 respectively.)
