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I would appreciate some help with this question please.
Sharpe Corporation’s projected sales for the first 8 months of 2014 are as follows:
January $90,000, Feb $120,000, March $135,000, April $240,000, May $300,000, June $270,000
July $225,000, Aug $150,000. Sharpe’s sales are generally; cash 10%, another 60% is collected in the month following the sale, with 30% collected in the second month following the sale. November and December sales for 2013 were $220,000 and $175,000 respectively.
Sharpe purchases its raw materials two months in advance of its sales equal to 60% of their final sales price and the supplier is paid 1 month after it makes delivery. eg purchases for April are made in February and payment is made in March. In addition, Sharpe pays $10,000 per month for rent, and $20,000 monthly for other expenses. Tax pre-payments of $22,500 are made per quarter beginning in March.Prepare a cash budget for Sharpe covering the first 7 months of 2014
Which bit of the question do you want help with (you cannot expect me to write out a full answer – especially since presumably the book in which you found the question must also contain an answer)?
The sales of 90,000 in January will result in cash receipts of 9,000 (10%) in January; 54,000 (60%) in February; and 27,000 (30%) in March.
Similarly for all the other months mentioned.Material purchases in January will be 81,000 (60% x March sales of 135,000), and the cash outflow will occur in February.
Similarly for all the other months mentioned.The payment would rent, other expenses, and tax should not be causing you a problem.
Have you watched the free lecture on cash budgets? It is part of chapter 6 of the free Lecture Notes (and the lecture that goes with it).
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