Finance Assignment Question 5

The BJC Company needs a master budget for the three months beginning April 1, 2017. The company retails widgets. The 2017 budget should be based on the following information. An ending minimum cash balance of $10,000each month is required. Sales are forecasted at an average selling price of $8 per widget. Merchandise costs are $4 per widget. Currently, the company maintains an ending inventory balance equal to 20% of the next month’s projected cost of goods sold. Purchases during any given month are paid half in the month of purchase and half during the following month. Sales are 20% cash and 80% on credit (payable within 30 days), but experience has shown that 60% of monthly credit sales is collected in the current month, 40% in the next month.

Monthly operating expenses are as follows:

Wage and salaries $15,000

Insurance expired 150

Depreciation 1,100

Utilities 1,200

Advertising 200

Miscellaneous 50

Rent 400 per month + 10% of monthly sales.

All operating expenses are paid as incurred, except insurance, depression, and rent. Rent of $400 paid at the beginning of each month, and the additional 10% of sales is paid in the month following the sale. The company plans to buy some new equipment for $5.000 cash in June. Cash dividends of $1,500 are to be paid quarterly, beginning April 15. Dividends are declared on the 15^th of the last month in the calendar quarter.

BCJ has an established line of credit with its bank, Third Fifth National. Money can be borrowed and repaid in multiples of $1,000, at an interest rate of 6% per annum. Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing occurs at the beginning and repayment at the end of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.