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    Cash Budget Analysis

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    CDLater's projected sales for the first four
    months of 201X are:
    January $60,000
    February $55,000
    March $65,000
    April $70,000
    The firm expects to collect 10 percent of sales in cash, 60 percent in
    one month, and 25 percent in two months with 5 percent in uncollectible
    bad debts. Sales for the previous November and December
    were $55,000 and $80,000, respectively.
    The firm buys raw materials thirty days prior to expected sales;
    that is, the materials for January are bought by the beginning of
    December with payment made by the end of December. Materials
    costs are 58 percent of sales.
    Wages for the months of January, February, and March are
    expected to be $6,000 per month. Other monthly expenses
    amount to $5,000 a month and are paid in cash each month.
    Taxes due for an earlier quarter are paid in the second month of
    the succeeding quarter. The taxes due for the prior quarter were
    $9,000.
    The firm plans to buy a new car in January for $18,000. An old
    vehicle will be sold for a net amount of $2,000. A note of $10,000
    will be due for payment in February. A quarterly loan installment
    payment of $7,500 is due in March.
    The beginning cash balance in January is $8,000. The company
    policy is to maintain a minimum cash balance of $5,000. It has an
    outstanding loan balance of $10,000 in December. Should the firm
    need to borrow to meet expected monthly shortfalls, the interest
    cost is 1.5 percent per month and is paid each month on the total
    amount of borrowed funds outstanding at the end of the previous
    month.
    Prepare a monthly cash budget for January, February, and March.

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    Solution Summary

    The solution provide an example for of cash budget preparation.

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