Quail Industries is preparing its cash budget for the third quarter of the current year.Sales for the third quarter are budgeted at $696,000 ($232,000 per month).Sales are 80% cash, with the remaining 20% on credit which is collected in the month following the month of sale.On June 30, the cash balance is $38,400, and the Accounts Receivable (all related to June sales) balance is $40,800.Operating expenses for the quarter are budgeted at $371,200, which includes $14,400 of depreciation.Cash expenses are paid in the month incurred.Cash purchases for merchandise inventory are budgeted at $313,600 for the quarter.To prepare for the busy fourth quarter, Quail's desired cash balance on September 30 is $120,000.How much financing will the company need at the end of the third quarter?
A)$29,600
B)$61,600
C)$116,800
D)$15,200

Question

Quizplus · Accepted Answer

First, we need to determine the total cash receipts for the quarter. 
- 80% of sales are cash, so the cash receipts for the quarter would be 80% of $696,000 = $556,800. 
- The remaining 20% of sales are collected in the following month, so the cash receipts for credit sales in Q3 would be 20% of $696,000 = $139,200 (to be collected in Q4).

Next, we need to determine the total cash disbursements for the quarter. 
- Operating expenses are budgeted at $371,200, plus $14,400 of depreciation, for a total of $385,600. These expenses are paid in the month incurred, so we can allocate them evenly over the three months of the quarter: $385,600 / 3 = $128,533.33 per month. 
- Cash purchases for merchandise inventory are budgeted at $313,600 for the quarter, or $104,533.33 per month.

Now we can prepare the cash budget:

Cash balance at June 30: $38,400
Add: Cash receipts in Q3 - $556,800
Subtotal: $595,200
Total cash available: $633,600

Less: Cash disbursements in July - $233,066.67
Less: Cash disbursements in August - $233,066.67
Less: Cash disbursements in September - $233,066.67

Desired ending cash balance: $120,000

Excess (or deficiency) of cash available over disbursements: $633,600 - ($233,066.67 x 3) - $120,000 = -$61,600

The negative result indicates a deficiency of cash, which means that Quail Industries would need to obtain financing in the amount of $61,600 in order to achieve its desired ending cash balance. Therefore, the best choice is B.

Quail Industries Is Preparing Its Cash Budget for the Third