ACCounting-Victoria Kite Company, a small Melbourne firm that sells kites on the Web

Victoria Kite Company, a small Melbourne firm that sells kites on the Web wants a master budget for the next 3 months, beginning January 1, 2008. It desires an ending minimum cash balance of $5,000 each month. Sales are forecasted at an average wholesale selling price of $8 per kite. Merchandise costs average per kite. All sales are on credit, payable within 30 days, but experience has shown that 60% of current sales are collected in the current month, 30% in the next month, and 10% in the month thereafter. Bad debts are negligible.In January, Victoria Kite is beginning just in time (JIT) deliveries from suppliers, which means that purchases will equal expected sales. On January 1, purchases will cease until inventory decreases to $6000, after which time purchases will equal expected sales. Purchases during any given month are paid in full during the following month.Monthly operating expenses are as follows:**Wages and salaries $15,000**Insurance expired $ 125**Depreciation $ 250**Miscellaneous $250/month + 10% of quarterly sales over $10,000Cash dividends of $1,500 are to be paid quarterly, beginning January 15th, and are declared on the fifteenth of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $250 is paid at the beginning of each month, and the additional 10% of sales is paid quarterly on the tenth of the month following the end of the quarter. The next settlement is due January 10th.The company plans to buy some new fixtures for $3,000 cash in March.Money can be borrowed and repaid in multiples of $500 at an interest rate of 10% per annum.Management wants to minimize borrowing and repay rapidly. Interest is computed and paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Money is never borrowed at the beginning and repaid at the end of the same month. Compute interest to the nearest dollar.Assets as of Liabilities as ofDecember 31, 2007Cash $ 5,000 Accounts payableAccounts receivable ,500 (merchandise) $35,550Inventory* $39,050 Dividends payable $ 1,500Unexpired insurance $ 1,500 Rent payable $ 7,800Fixed assets, net $12,500 TOTAL $44,850TOTAL $70,550*November 30 inventory balance =,000Recent and forecasted sales:October $38,000 December $25,000 February $70,000 April $45,000November $25,000 January $62,000 March $38,000Question 1Prepare a master budget including a budgeted income statement, balance sheet, statement of cash receipts and disbursements, and supporting schedules for the months January through March 2008.Question 2Explain why there is a need for a bank loan and what operating sources provide the cash for the repayment of the bank loan

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