This is a practice case study to help you become familiar with how to create a comprehensive cash budget. The cash budget relates to TCO D and is discussed in Chapter 7. Your Professor will provide the solution by the end of Week 5 in Doc Sharing.
The actual case study assignmentshould be uploadedby 11:59PM Mountain time of the Sunday ending Week 6 to the Week 6 AssignmentDropbox. You are encouraged to use the Excel template file provided in Doc Sharing.
The Cambridge Company has budgeted sales revenues as follows:
Jan Feb Mar
Credit sales $45,000 $36,000 $27,000
Cash sales 27,000 76,500 58,500
Total sales $72,000 $112,500 $85,500
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $97,500 in January, $67,500 in February, and $31,500 in March.
Other budgeted cash receipts: (a) sale of plant assets for $18,525 in February, and (b) sale of new common stock for $25,275 in March. Other budgeted cash disbursements: (a) operating expenses of $10,125 each month, (b) selling and administrative expenses of $18,750 each month, (c) dividends of $28,500 will be paid in February, and (d) purchase of equipment for $9,000 cash in March.
The company has a cash balance of $15,000 at the beginning of February and wishes to maintain a minimum cash balance of $15,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available.Also assume that there is no outstanding financing as of February 1.
Requirements:
1. Use this information to prepare a Cash Budget for the months of February and March, using the template provided in DocSharing.
Please note: This is not a graded assignment but your instructor will share the solution for this practice exercise by the end of Week 5. It is highly recommended that you try to build the cash budget on your own first.