Cash Budget
Thunder, Inc. is developing its cash budget for the upcoming year. Of Thunder’ sales, 20% is for cash, another 60% is gathered in the month following sale, and 20% is gathered in the second month following sale. November and December sales for 2010 were $229000 and $250,000, correspondingly.
Thunder’ purchases its raw materials 2 months in advance of its sales equivalent to 70% of its final sales price. The supplier is paid one month after it makes delivery. For instance, purchases for April sales are made in month of February, and payment is made in the month of March.
In addition, Thunder pays $10,000 per month for rent and $20,000 each and every month for other expenditures. Tax prepayments for $32,000 are made each quarter start in March.
The company’s cash balance at December 31, 2010, was $26,000 and minimum balance of $25,000 should be maintained at all times. Suppose that any short-term financing required maintaining cash balance would be paid off in the month following the month of financing if sufficient funds are accessible.
Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash requires takes place at the beginning of month. For instance, if in the month of April the firm anticipates to have require for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the starting of May.
Sales for Thunder Inc.:
|
January
|
$229,000
|
|
February
|
$250,000
|
|
March
|
$270,000
|
|
April
|
$275,000
|
|
May
|
$280,000
|
|
June
|
$290,000
|
|
July
|
$280,000
|
|
August
|
$260,000
|
Required:
problem1. Prepare a monthly cash budget for Thunder Inc. covering the first 7 months of 2010.