Prepare a Cash Distribution Budget

Pete's Pasta (which sells meat & veggie pastas) needs a cash budget for year 3 and has given the following info. Sales are all on account & are estimated to be collected over a 3-month period, with 70% collected in the month of sale, 25% collected in the next month, and 4% collected in the third month. The remaining 1% is estimated to be uncollectible. Dec & Nov sales from the previous year were $201,638 & $185,000 respectively. Because of the lag in collecting cash from sales on account, Pete's delays payments of some on some of its purchases of materials. Pete's estimates that 60% of each month's material purchases are paid in the month of purchase & 40% in the following month. The accounts payable balance for materials at the end of the previous year was $20,000. Pete's also requires a minimum balance of $40,000 in cash at the end of each month. Pete's will use its line of credit when needed to bring the balance up to that minimum level. For any money borrowed, the interest rate is 6% compounded annually. You can assume that cash flow is borrowed on the first day of the month & that loan payments are made at the end of the month.

Pete's plans to exercise the option on the leased production equipment in March. Pete's currently leases its equipment from Pasta Products for $2,500 per month. 2 years of the 5 year lease term remain. Pete's can terminate the lease at anytime by paying a penalty of $10,000. Pete's is considering purchasing equipment to replace the leased equipment. The purchase price on the equipment will be $153,000 with payments of $3,260.36 per month. Pete's also plans on expanding the existing production space in May at a cost of $200,000. Pete's would like to finance the expansion out of current earnings & so will use a line of credit, if needed, in May. The expansion will cause fixed manufacturing overhead to increase by $10,000 per month starting in May.

A) Prepare a cash receipts budget for year 3 in excel preferably, assuming estimated sales of 385,000 meat pastas & 30,000 veggie pastas & the following monthly distribution of sales.

Jan 8.3% July 8.5%
Feb 9.2 Aug 9.8
March 10.3 Sept 7.5
April 7.6 Oct 9.1
May 8.0 Nov 7.2
June 6.9 Dec 7.6

Direct material costs per unit are $.74 for meat pasta & $.62 per veggie pasta. Direct labor costs are $2.51 per meat pasta & $2.78 per veggie pasta. Monthly fixed selling & admin costs are $15,300 while monthly fixed manufacturing overhead is $2, 851. Variable overhead cost is $.55 per pasta. The sales price for veggie pastas is $5.25 per pasta & the sales price for meat pastas is $5.00.

B) Prepare a cash distribution budget for the year.