Cash budget

As you know, the two capital projects being proposed are an effort to sustain long-term growth. However, it’s important to present an accurate projection of our short-term cash requirements to ensure we have a capacity to grow.

I would like you to develop a cash budget for the months of July 2017 – December 2017. Be sure it is divided in to three sections: (1) Total Cash Receipts; (2) Total Cash Disbursements, (3) Cash or Financing covering the period of July through December. Do we have excess cash each month? Or, do we need financing each month to sustain our day-to-day operations?

The following is a summary of the cash inflows and outflows our team put together last month:

Expected gross sales for April 2017 – December 2017 are: $300,000, $300,000, $290,000, $425,000, $500,000, $600,000, $625,000, $650,000, and $700,000

5% of the sales are collected in cash each month

15% of sales are collected during the following month; 50% in the second month; 30% in the third month

Expected purchases of raw materials are 70% of the expected sales each month

The firm pays 100% of its raw materials purchases in the following month

Wages and salaries are paid monthly and are 10% of the current month’s sales

Monthly lease payments are 6% of the current month’s sales

Monthly advertising expense amounts to 8% of current month’s sales

R&D expenditures are expected to be allocated in August, September, and October at the rate of 12% of sales in those months

During December, a prepayment of insurance will be made in the amount of $24,000

During the months of July through December, the firm expects to have miscellaneous expenditures of $15,000, $20,000, $25,000, $30,000, $35,000, and $40,000

Taxes will be paid in September in the amount of $40,000 and in December in the amount of $45,000

The beginning cash balance in July is $15,000

The target cash balance is $15,000