This assignment will require you to prepare the cash budget and determine the cash surplus and shortage each month.
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.