To avoid any uncertainty regarding his business' financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture: Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next 9 months:
| March |
$100,000 |
| April |
$275,000 |
| May |
$320,000 |
| June |
$450,000 |
| July |
$700,000 |
| August |
$700,000 |
| September |
$825,000 |
| October |
$500,000 |
| November |
$115,000 |
He has also gathered the following collection estimates regarding the forecast sales:
• Payment collection within the month of sale = 25%
• Payment collection the month following sales = 55%
• Payment collection the second month following sales = 20%
Payments for direct manufacturing costs like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows:
| March |
$187,500 |
| April |
$206,250 |
| May |
$375,000 |
| June |
$337,500 |
| July |
$431,250 |
| August |
$640,000 |
| September |
$395,000 |
| October |
$425,000 |
Additional financial information is as follows:
• Administrative salaries will approximately amount to $35,000 a month.
• Lease payments around $15,000 a month.
• Depreciation charges, $15,000 a month.
• A one-time new plant investment in the amount of $95,000 is expected to be incurred and paid in June.
• Income tax payments estimated to be around $55,000 will be due in both June and September.
• And finally, miscellaneous costs are estimated to be around $10,000 a month.
• Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times.