Lewis is a merchandising company. Each month they buy the inventory that they expect to sell the next month. Then they pay for it 50% in the month of purchase and 50% the next month. The purchase price is $50.

The sales commission is 6% and is paid in the month following the sales. Variable costs are 20% of sales and is paid 80% in the month incurred and 20% the following month.

Fixed costs are: Depreciation = $3,000 per month

Insurance = $1,200 per month paid on 1-1 and 7-1

Taxes = $800 per month and paid on 1-1.

Salaries = $12,000 per month paid when incurred

They plan on buying equipment for $10,000 in January and pay for it then.

The beginning cash balance is $10,000

Sales Price is $80 per unit. 10% of sales are cash and the rest credit. The collection pattern is: 30% in month of sale, 50% the next month and 20% two months later.

Sales

October, 2015= 8,000

November, 2015 = 9,000

December, 2015 = 10,000

January, 2016 = 9,000

February, 2016 = 8,000

March, 2016 = 8,500

April ,2016 = 10,000

Prepare a cash budget for the first quarter of 2016. If a loan is needed, a line of credit has been established at the bank. The loan would be taken out on the first of the month and repaid at the end of the month when all can be paid. The rate is 6%.