The National Instruments Corporation manufactures different types of printers for personal computers. The company is planning its cash needs for the second quarter of 2012. In the past, National has had to borrow money during the second quarter since sales peak during this period of time. It would like to be aware of any potential cash shortages before they occur.
The Controller asks you, the Senior Budgeting Accountant, to prepare a Cash budget for April, May and June for the entire company. Today is December 1, 2011 and you have just met with other employees from the Purchasing, Production, Marketing, and Finance departments. From this meeting you compiled the following table of information (all based on estimates).
|
2012 |
2012 |
2012 |
|
April |
may |
june |
| sales (both cash & credit) |
200,000 |
250,000 |
300,000 |
| raw materials purchased |
60,000 |
80,000 |
70,000 |
| direct labor cost |
40,000 |
50,000 |
45,000 |
| factory overhead cost |
5000 |
8000 |
6000 |
| Selling and administrative expenses |
40,000 |
50,000 |
60,000 |
|
|
|
|
Monthly sales are 20% cash and 80% on credit. Credit sales are collected over a three-month period with 50% collected in the month of the sale, 30% in the month following the sale, and 20% collected in the second month following the sale.
Raw Material Purchases are expected to be paid as follows: 50% in the month of the purchase; 50% in the following month. Purchases in March 2012 were $ 50,000.
Note that credit sales for February and March 2012 were $ 180,000 and $ 190,000.
Production workers are paid their wages in the month they were earned.
Factory Overhead Costs are paid in the month following the month they are incurred (FOH costs were $ 6,000 for March 2012)
Selling & Administrative Expenses are paid in the month in the month they are incurred.
National plans to borrow $ 120,000 from its bank and will receive the money on May 1, 2012. The loan must be paid back in a lump sum payment on March 31, 2014. The yearly interest rate is 8% and interest has to be paid each month (assume the same interest expense each month regardless of the number of days in the month).
National plans to purchase back $75,000 of its own stock (Treasury Stock) in the three months: April, May, and June 2012 ($ 25,000 in each month).
Estimated federal income tax payments of $ 75,000 must be made in April 2012 and July 2012.
National will pay cash for the purchase of $ 80,000 of new production machinery in April 2012.
National will issue (sell) 20,000 new shares of common stock in May 2012. The sales price is expected to be $ 15 per share.
National expects its cash balance on March 31, 2012 to be $ 75,000. Requirements:
Prepare a monthly cash budget for National for the three-month period ending June 30, 2012 (i.e. the second quarter of 2012).
Comment on whether the ending cash balances for the three months are adequate and what National might do in a month where the estimated cash balance is negative.