Peachtree's Siding and Window Co Peachtree's Siding and Window Co

question 48

Essay

Peachtree's Siding and Window Co. is a custom home improvement company. All sales are made on account: 30 percent of a month's sales are collected in the month of sale, 60 percent are collected in the month following the sale, and 8 percent are collected in the second month following the sale. Cash on hand on October 1 is estimated to be $32,000.
Merchandise purchases and operating expenses are paid as follows: $\begin{array}{l}\text { In the month during which the merchandise is purchased }&80\% \\\text { or the cost is incurred } \\\text { In the subsequent month }&20\%\end{array}$ Peachtree's Siding and Window Co.'s budgeted income statement for each of the next three months is as follows: $\begin{array}{c}\begin{array}{lll}\\\text {Sales}\\\text {Cost of goods sold:}\\\text {Beginning inventory}\\\text {Purchases}\\\text {Goods available}\\\text {Less: End. inventory}\\\text {Cost of goods sold}\\\text {Gross profit}\\\text {Operating expenses}\\\text {Operating income} \end{array}\begin{array}{c}\text { August } \\\$ 140,000 \\ \\\$ 16,400 \\\underline{135,300}\\ \$ 151,700 \\\underline{(28,900)}\\\underline{\$ 122.800} \\ \$ 17,200 \\\underline{(11.400)}\\ \underline{\underline{\$ 5.800}} \end{array}\begin{array}{lll}\text {September}\\\$ 169,000 \\\\ \$ 28,900 \\ \underline{141.500} \\\$ 170,400 \\ \underline{(25,600) } \\ \underline{\$ 144,800} \\ \$ 24,200 \\ \underline{ (15,100) } \\ \underline{ \underline{\$ 9,100}} \end{array}\begin{array}{lll}\text { October } \\\$ 181,000 \\\\\$ 25,600 \\ \underline{\$ 149,700}\\\$ 175,30 \\ \underline{(21,200)}\\\$ 154,100 \\\$ \$ 26,900 \\ \underline{(14,300)}\\ \underline{ \underline{\$ 12,600}} \end{array}\end{array}$
Prepare a cash budget for the month of October.

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Definitions:

Variable Cost

Spending that rises and falls according to how much is produced or sold, including costs for labor and materials.

Fixed Costs

Expenses that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Activity Changes

Fluctuations or variations in the operations of a business that can affect its financial performance and necessitate managerial adjustments.

Total Variable Cost

The aggregate of all costs that vary with the level of output, including materials, labor, and other expenses directly tied to the production volume.