Helping Hand is a small rapidly growing wholesaler of consum

Helping Hand is a small, rapidly growing wholesaler of consumer electronic products. The company\'s main product lines are small kitchen appliances and power tools. The marketing manager has recently completed a sales forecast. She believes the company\'s sales will increase by 1 percent each month over the previous month\'s sales from December 2015 through March 2016. Then sales are expected to remain constant for several months. Helping Hand\'s projected balance sheet as of December 31, 2015 is as follows: Cash 60,000 Accounts receivable 172,530 Marketable securities 10,000 Inventory 39,784 Buildings and equipment (net of accumulated depreciation) 600,000 Total assets $ 882,314 111,940 4,040 8,000 Accounts payable Sales commissions payable Bond interest payable Property taxes payable Bonds payable (4%; due in 2020) Common stock Retained earnings Total liabilities and stockholders\' equity 600,000 100,000 58,334 882,314 $ The following information has been accumulated to assist with preparing the master budget for the first quarter of 2016: 1) Projected sales for November 2015 are $200,000. Credit sales are typically 90% of total sales. Helping Hand\'s credit experience indicates that 13% of credit sales are collected during the month of sale, 75% in the month following the sale, and 10% in the second month following the sale. Experience shows the remaining credit sales are uncollectible. 2) Helping Hand\'s cost of goods sold generally runs at 65% of sales. Inventory is purchased on account and 15% of each month\'s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the company attempts to have inventory on hand at the end of each month equal to 30% of the next month\'s projected cost of goods sold. 3) The controller has estimated that Helping Hand\'s other monthly expenses will be as follows: Sales salaries 35,000 Advertising and promotion 5,000 Administrative salaries 12,000 Depreciation 7,500 Interest on bonds 2,000 Property taxes 1,000

Solution

Conclusion : To ensure that the Cash balance remains at a minimum of $ 30,000, the Dividend payment has been suggested to be deferred to a later date when sales and collections improve, Further, it is proposed to limit repayment to $ 127,000. This would ensure that the company is able to retain a minimum Cash Balance of $ 30,000. The revised Summary Cash Budget is given below :

1)Sales budget:
	Basis	2015	2016	1st quarter
		November	December	January	February	March	Total
Total sales	110%	200,000	220,000	242,000	266,200	292,820	801,020
Cash Sales 10%	10%	20,000	22,000	24,200	26,620	29,282	80,102
Credit Sales 95%	90%	180,000	198,000	217,800	239,580	263,538	720,918