Question

Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,800 per month, and the rent is $2,400 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $700, but Koehl has agreed to maintain an average bank balance of $4,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $110,000.

	Sales		Purchases
December	$150,000		$25,000
January	30,000		25,000
February	70,000		25,000

1. Prepare a cash budget for December, January, and February. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.

   Collections and Purchases:
   	December		January		February
   Sales (Collections)	$		$		$
   Purchases	$		$		$
   Payments for purchases	$		$		$
   Salaries	$		$		$
   Rent	$		$		$
   Taxes	$		---		---
   Total payments	$		$		$
   Cash at start of forecast	$		---		---
   Net cash flow	$		$		$
   Cumulative cash balance	$		$		$
   Target cash balance	$		$		$
   Surplus cash or loans needed	$		$		$

2. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.) Do not round intermediate calculations. Round your answer to the nearest dollar.

   $  

Answer 1

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1 Ale ? 1x ENG 06-52 25-02-2020 24 FM648 X fix FI FK FL FM FN FO FP 648 649 650 651 652 653 654 655 CASH BUDGET 657 658 659 660 110000 25000 A SALES PURCHASES 1 PAYMENT FOR PURCHASES 2 SALARIES 3 RENT 4 TAXES B =1+2+3+4 TOTAL PAYMENTS C CASH AT THE START OF FORECAST A-B NET CASH FLOW CUMULATIVE NCF TARGET CASH BALANCE SURPLUS CASH OR LOANS NEEDED COLLECTIONS AND PURCHASES DECEMBER JANUARY FEBRUARY 150000 30000 70000 25000 25000 25000 25000 4800 4800 4800 2400 2400 2400 12000 129200 32200 32200 700 4500 4500 20800 -2200 37800 21500 19300 57100 4500 4500 4500 17000 14800 52600 667 668 669 670 671 ... CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont ... :

1 Ale ? 1x ENG 06-52 25-02-2020 24 FM694 FK EM EN FOFP 671 672 673 674 675 676 677 678 DECEMBER O [NO SALES REALIZED IN DECEMBER] 25000 110000 4800 2400 12000 129200 700 -129200 -128500 4500 -133000 A SALES PURCHASES 1 PAYMENT FOR PURCHASES 2 SALARIES 3 RENT 4 TAXES B =1+2+3+4 TOTAL PAYMENTS C CASH AT THE START OF FORECAST A-B NET CASH FLOW CUMULATIVE NCF TARGET CASH BALANCE SURPLUS CASH OR LOANS NEEDED 680 681 682 683 ANSWER LOAN REQUIREMENT = 133000 687 688 689 690 691 692 693 694 ... CASH BUDGET budget 45 days cycle ROE, BV MV ratio | VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont ... :