Jodie Products Limited is a merchandising company that sells stationery and other school supplies. The company is planning its cash needs for 2014/2015. In the past Jodie Products had to borrow money in order to support peak sales of back to school material, which occur during January. The following information has been provided to assist in preparing a cash budget for the period:
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Budgeted monthly income statement for December 2014 to March 2015 |
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|
December |
January |
February |
March |
|
N$ |
N$ |
N$ |
N$ |
|
|
Sales |
40 000 |
70 000 |
50 000 |
45 000 |
|
Cost of sales |
24 000 |
42 000 |
30 000 |
27 000 |
|
Gross margin |
16 000 |
28 000 |
20 000 |
18 000 |
|
Operating expenses |
|
|
|
|
|
Selling expenses |
7 200 |
11 700 |
8 500 |
7 300 |
|
Administrative expenses |
5 600 |
7 200 |
6 100 |
5 900 |
|
Net income |
3 200 |
9 100 |
5 400 |
4 800 |
Note the following additional information:
• Administrative expenses include N$2 000 depreciation each month.
• 20 % of sales are cash sales. Credit sales are collected over a three month period in the ratio of 10% in the month of sale; 70% in the month following sale and 20% in the second month following sale. October sales amounted to N$30 000, and November sales to N$36 000.
• Inventory purchases are paid for within 15 days. Therefore 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month.
• Purchases amount to 75% of the following month’s sales.
• Dividends of N$1 000 will be declared and paid in February.
• The cash balance on 30 November was N$8 000. The company must maintain a cash balance of at least N$8 000 at all times.
• The company can borrow cash from the bank as needed. Loans are received in multiples of N$1 000. Interest paid on loans are 15% per annum, payable monthly.
Prepare a cash budget for December, January and February. When will Jodie products be able to repay the loan?