United Garments company sales

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United Garments company sales in December 2019 were $80,000 and they are expected to rise by $6,500 per month for the next 5 months. Of sales, 80 per cent are collected during the month of sale and the rest two months after sales. The cost of sales is 60 per cent of sales and, the company plans to keep an inventory at the end of each month equal to forty per cent of the anticipated sales for the next month’s sales. Suppliers are paid one month after purchases are made. Monthly wages amount to $4,000, rent and heating $700 and depreciation $600. A machine is to be bought in March for $8,000 paid in cash. The purchase of the machine means that the monthly change for depreciation will increase by $40. The inventory held at January 1st is $16,500.


1. Calculate the estimated cash collection from sales for February and March. (6 marks)

2. Calculate the purchases for February and March. (10 marks)

3. Assuming that the cash balance at 31/01/2020 is $10,000; prepare a cash budget for the two months ending March 31, 2020. (12 marks)

4. Discuss whether the company will be able to repay a loan of $75,000 at the end of March. (2 marks)




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