Cash budgeting
1. Prepare a monthly cash budget for Jones Products Inc. for the first six months of 2018
2. Turn in both a hard copy and an electronic copy of your spreadsheet.
Use the following assumptions to prepare your cash budget:
Revenue estimates (in thousands):
| Use the following assumptions to prepare your cash budget: |
| Revenue estimates (in thousands): |
Nov*
Dec* |
$340
$380 |
Feb
Mar |
$290
$290 |
May
Jun |
$380
$420 |
Jan
* Historical |
$280 |
Apr |
$320 |
Jul |
$440 |
| Collection on sales (all sales on credit): |
Current month:
First month following:
Second month following:
Purchases of raw materials: |
20%
70% |
9% |
| (1% bad debt losses) |
| 72% of projected following month sales |
| Payment on purchases: |
30 days following purchase of materials |
| Other expenses and disbursements (in thousands): |
| Utilities: |
$8/month |
Wages and salaries:
Other fixed expenses: |
$55 + 2% current month's sales |
| $5/month |
| Interest on bonds (not LOC): $20 in May ($0 all other months) |
| Quarterly tax payments: |
$12/month in Mar and Jun ($0 all other months) |
| Equipment maintenance: |
$50 in Feb ($0 all other months) |
Line-of-credit:
$1,000,000 maximum available credit
No maintenance fee
5.50% interest (annual rate, compounded monthly) on ending balance of prior month
Other:
- A minimum cash balance of $60K must be maintained at the end of each month
- A balance of $54K on the line-of-credit exists at the end of Dec
- Quarterly dividends of $15K will be paid in Jan and Apr ($0 all other months)
- Any cash in excess of $60K at the end of each month will first be used to pay down any existing balance on the LOC, then swept into money market funds. Money market funds will earn 2.1% per annum (0.175% per month).