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Preparation of receipts from debtors schedule and cash
Elvstrom Company prepares monthly cash budgets. Provided below is a
set of relevant data extracted from existing reports, and the sub-budgets
for the two months of September and October 2011.
All sales are on credit. Collections from debtors normally have the
following pattern: 60 per cent in the month of sale, 30 per cent in the
month following the sale, and 10 per cent in the second month following
the sale. Fortunately, Elvstrom does not have much trouble with bad
Sales in June, July and August were $295 000, $266 000 and $302 000
respectively. Direct material purchases are paid for in the month following
the purchase. Purchases in August were $182 000. Manufacturing
overhead includes $12 500 for depreciation expense, while the marketing
and administration expenses include an amount o± $5600 for depreciation
expenses. Elvstrom expects to be able to repay the principal on a $50 000
loan in October.
(a) Prepare a schedule of receipts from debtors for the two months
ending 31 October 2011.
(b) Prepare a cash budget for September and October 2012. The cash
balance at 31 August 2011 was $12 600.
(c) As part of its longer term plans, Elvstrom was hoping to commence a
product reinvention program for one of its core products. The project
would require an initial cash commitment of $30 000. Management
was hoping to fund this from the cash ² ows of the business. Does
this seem feasible?
This question was answered on: May 23, 2022
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