The management estimates total sales for the period January through July based on actual sales from the immediate past quarter. The following assumptions are made:
| Sales: Past and Expected |
| Historical |
Forecast |
| October |
$300,000 |
January |
$150,000 |
| November |
$350,000 |
February |
$200,000 |
| December |
$400,000 |
March |
$200,000 |
|
|
April |
$300,000 |
|
|
May |
$250,000 |
|
|
June |
$200,000 |
|
|
July |
$300,000 |
a. Sales are 75% on credit basis and 25% on cash basis. 60% of credit sales are collection one month after sale, 30% in the second month, and 10% in the third month. Bad debts are insignificant.
b. Purchases are 80% of sales and are paid as follows: 50% of sales are paid in the same month and the remaining 50% are paid in the following month.
c. Wages and salaries are as follows:
| January |
$30,000 |
| February |
$40,000 |
| March |
$50,000 |
| April |
$50,000 |
| May |
$40,000 |
| June |
$35,000 |
d. Rent is $2,000 per month
e. Interest on $500,000 of 16% bonds is due on the calendar quarter.
f. A tax prepayment of $50,000 is due in April.
g. A capital addition of $30,000 is planned in June.
h. The company has a cash balance of $100,000 on January 1st, which is the minimum balance maintained each month.
1. Prepare cash budget for Jan to June.
2. Determine the cash surplus and shortages for each month.