Cash Budget
Capers, Inc. is developing its cash budget for the next year. Of Capers' sales, 20% is for cash, another 60% is collected in the month following sale, and 20% is collected in the second month following sale. November and December sales for 2010 were $229000 and $250,000, respectively.
Capers' purchases its raw materials two months in advance of its sales equal to 70% of its final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February, and payment is made in March.
In addition, Capers pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments for $32,000 are made each quarter beginning in March.
The company's cash balance at December 31, 2010, was $26,000 and minimum balance of $25,000 must be maintained at all times. Assume that any short-term financing needed to maintain cash balance would be paid off in the month following the month of financing if sufficient funds are available.
Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. For example, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the beginning of May.
Sales for Capers Inc.:
| January |
$229,000 |
| February |
$250,000 |
| March |
$270,000 |
| April |
$275,000 |
| May |
$280,000 |
| June |
$290,000 |
| July |
$280,000 |
| August |
$260,000 |
Required:
Prepare a monthly cash budget for Capers Inc. covering the first 7 months of 2010.