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Victoria Kite Company is a small Melbourne firm that sells kites on the Web wants a master budget for the next three months, beginning January 1, 2005. When developing the master budget it was discovered that only 60% of the current sales are

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Group Project Unit Four ACG_420 Managerial Accounting And Organizational Controls July 1, 2006 Victoria Kite Company's Master Budget Schedules Schedule A: Sales Budget January February March Total Recent & Forecasted Sales $62,000 $75,000 $38,000 $175,000 Schedule B: Cash Collections January February March Totals 60% of Current Month Sales $37,200 $45,000 $22,800 $105,000 30% of Previous Month Sales 7,500 18,600 22,500 48,600 10% of 2 Months Earlier 2,500 2,500 6,200 11,200 Totals $ 47,200 $ 66,100 $ 51,500 $ 164,800 Schedule C: Purchases January February March Totals Desired ending inventory $ 6,000 $ 6,000 $ 6,000 $ 18,000 Cost of goods sold 31,000 37,500 19,000 87,500 Total needed 37,000 43,500 25,000 105,500 Less beginning inventory 39,050 8,050 6,000 53,100 Purchases $ - $ 35,450 $ 19,000 $ 52,400 Schedule D: Disbursements January February March Total 100% of last months purchases $ 35,550 $ - $ 35,450 $ 71,000 Cash Budget Jan Feb March Beginning cash balance $ 5,000 $ 5,100 $37,692 Minimum cash balance desired $ 5,000 $ 5,000 $ 5,000 Available cash balance $ - $ 100 $32,692 Cash Receipts and Disbursements Cash Collections $ 47,200 ...read more.


An ending minimum cash balance of $5,000 is desired at the end of each month and the budget shows an ending balance of ($10,400) therefore creating the need for a loan of $15,500 giving Victoria Kite Company a closing cash balance of $5,100 at the end of January 2005. (See table 1) Victoria Kite Company needs to take out a bank loan due to the lack of funds to pay the larger rent and monthly costs. The company only has the minimum starting cash balance causing a shortage when subtracting the disbursements from the cash receipts. Table 1 Cash budget Jan-05 Feb-05 Mar-05 Cash balance at the beginning of the month $5,000.00 $5,100.00 $37,692.00 Cash collected from sales $47,200.00 $66,100.00 $51,500.00 Total cash available $52,200.00 $71,200.00 $89,192.00 Cash disbursed for operations ($61,100.00) ($17,750.00) ($53,200.00) Furniture's & Fixtures ($3,000.00) Dividends ($1,500.00) Total cash disbursement ($62,600.00) ($17,750.00) ($56,200.00) Balance at the end of month before bank loan ($10,400.00) $53,450.00 $32,992.00 Required closing balance $5,000.00 $5,000.00 $5,000.00 Bank loan received $15,500.00 Bank loan repaid ($15,500.00) ...read more.


One other option would be to offer a cash back discount like 5% for paying within the specified net 30 day terms. This offers an incentive to both the customer and the company. The Victoria Kite Company comes to a negative excessive cash balance in January requiring them to get a bank loan. The terms of the loan are the loan has to be paid in $500 increments with 10% interest rate. The accounts receivable, cash and credit payments are the income sources that will be used to repay the bank loan. A bank loan also helps a company grow faster than it may be able to grow without the added money. If a business is working at its full capacity and still unable to meet customer demand, it may be worth taking out a bank loan to increase the facility to be able to meet customer demand. Repayment of the bank loan will be paid back in full with interest in the month of February 2005 due to the increase cash collections from sales operation sources providing the cash flow for the repayment of the bank loan. ...read more.

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