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ing and in each departmental budget. 16. Krystal Company is just beginning operations and will sell a product (the identity of which remains a secret at this time). Krystal Gee, the company founder, has set as a basic strategic goal of earning 5 percent on each sales dollar. She also wants a rising volume of sales each month and doesn't want to borrow any money. The founder recognizes that achieving these goals immediately may be difficult, but she wants the first six months to indicate whether these goals are feasible. With the help of a local accountant, Krystal together the following information for the initial budget. This budget data assumes that Krystal's owner can buy, rather than make, the basic product it will sell. Krystal has also negotiated contracts for sales and other support services that call for these service providers to receive a percentage of sales dollars as payment. put Purchases Sales January February | 64,000 105,000 March $79,000 $122,000 94,000 56,000 May June Krystal expects to get a 3 percent discount get the discount, payment must be made in the month of purchase. Krystal plans to take all discounts that apply. The remaining purchases are paid for, in full, the following month Krystal expects to sell its product to customers and have the supplier ship directly to the customer. Krystal therefore will carry no inventory. All of Krystal's sales are on credit. The collection pattern is 35 percent in the month following the sale, 50 percent two months after the sale, and 13 percent in the third month after the sale. Two percent of sales are estimated to be uncollectible. Monthly sales support expenses are equal to 12 percent of sales plus $23,000. The $23,000 includes $8,000 of depreciation, which involves no cash flow. Sales support expense amounts are paid one month after they are recognized as expenses. Assume Krystal pays no taxes. Krystal started business on January 1 with $100,000 of cash on hand. on 55 percent of its product purchases. To Required: a. Compute the cash collections by month and in total for January through June. b. Compute the cash disbursements by month and in total for January through June c. Compute the expected cash balance each month. (Assume for this computation that Krystal can carry a negative cash balance.) d. Prepare an income statement for Krystal by month and in total for January through June. 483

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