Jodie Products Limited is a merchandising company that sells stationery and other school supplies. The company is planning its cash needs for 2014/2015. In the past Jodie Products had to borrow money in order to support peak sales of back-to-school material, which occur during January. The following information has been provided to assist in preparing a cash budget for the period:
Budgeted monthly income statement for December 2014 to March 2015
December
January
February
March
N$
N$
N$
N$
Sales
40 000
70 000
50 000
45 000
Cost of sales
24 000
42 000
30 000
27 000
Gross margin
16 000
28 000
20 000
18 000
Operating expenses
Selling expenses
7 200
11 700
8 500
7 300
Administrative expenses
5 600
7 200
6 100
5 900
Net income
3 200
9 100
5 400
4 800
Note the following additional information:
Administrative expenses include N$2 000 depreciation each month.
20 % of sales are cash sales. Credit sales are collected over a three-month period in the ratio of 10% in the month of sale; 70% in the month following sale and 20% in the second month following sale. October sales amounted to N$30 000, and November sales to N$36 000.
Inventory purchases are paid for within 15 days. Therefore 50% of a months inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month.
Purchases amount to 75% of the following months sales.
Dividends of N$1 000 will be declared and paid in February.
The cash balance on 30 November was N$8 000. The company must maintain a cash balance of at least N$8 000 at all times.
The company can borrow cash from the bank as needed. Loans are received in multiples of N$1 000. Interest paid on loans are 15% per annum, payable monthly.
Prepare a cash budget for December, January and February. When will Jodie products be able to repay the loan?