Prepare a cash budget for Elmwood Manufacturing Company for the first three months of 2007 based on the following information.
(See information attached as a file)
The company has found that approximately 40% of sales are collected during the month the sale is made and the remaining 60% are collected during the month following the sale. Material purchases are 30% of next month's estimated sales, and payments lag these purchases by one month. Labor costs are 35% of next month's sales and are paid during the month uncurred. Factory overhead and selling and administrative expenses are paid during the month incurred. In addition, a payment for new equipment of $1.5 million is due in February. Also, a tax payment of $1.6 million and a dividend payment of $650,000 are due in March.
The company's projected cash balance at the beginning of January is $1.5 million. Furthermore, Elmwood desires to maintain a $750,000 cash balance at the end of each month.
The cash budget is in the attached file. The formulas in it should be self-explanatory.
Notice that material ...
This solution provides a brief written explanation of how to prepare a cash budget for Elmwood Manufacturing Company for the first three months of 2007 based on provided information. The expert also provides an Excel spread sheet detailing the produced budget for the company.