Question

CASH BUDGETING

CASH BUDGETING Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2016 and 2017: May 2016 $186,000 June 186,000 July 372,000 August 540,000 September 720,000 360,000 October November 360,000 December 90,000 January 2017 180,000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2016 $90,000 June 90,000 July 126,000 August 881,000 September 305,000 October 234,000 November 163,000 December 90,000

Answer 1

Cash Budget for the period July 2016 to Dec 2016 May June July August September October November December January 186,000 $ 186,000 $ 372,000 $ 540,000 $ 720,000 $ 360,000 $ 360,000 $ 90,000 $ 180,000 Sales (gross) $ $ Collections During month of sale During 1st month of sale During 2nd month of sale 18,600 - - $ $ $ 18,600 $ 139,500 $ - $ 37,200 $ 139,500 $ 27,900 $ 54,000 $ 279,000 $ 27,900 $ 72,000 $ 405,000 $ 55,800 $ 36,000 $ 540,000 $ 81,000 $ 36,000 $ 270,000 $ 108,000 $ 9,000 $ 270,000 $ 54,000 $ 18,000 67,500 54,000 $ Total Collections $ 204,600 $ 360,900 $ 532,800 $ 657,000 $ 414,000 $ 333,000 Purchases Labour and Raw Materials $ 90,000 $ 90,000 $ 126,000 $ 881,000 $ 305,000 $ 234,000 $ 163,000 $ 90,000 Payments for Labour & Raw Material $ 90,000 $ 90,000 $ 126,000 $ 881,000 $ 305,000 $ 234,000 $ 163,000

Cash Gain or Loss for month July August September October November December Collections $ 204,600 $ 360,900 $ 532,800 $ 657,000 $ 414,000 $ 333,000 $ Pavments for Labour & Raw Material General & Administrative Salaries Lease Payments Miscellaneous Expenses Income Tax Payments Design Studio Payment Total Payments 90,000 $ 26,000 $ 9,000 $ 2,600 $ - $ 126,000 $ 26,000 $ 9,000 $ 2,600 $ - $ - $ 163,600 $ 881,000 $ 26,000 $ 9,000 $ 2,600 $ 64,000 $ - $ 982,600 $ 305,000 $ 26,000 $ 9,000 $ 2,600 $ - $ 132,000 $ 474,600 $ 234,000 $ 26,000 $ 9,000 $ 2,600 $ - $ - 271,600 $ 163,000 26,000 9,000 2,600 64,000 $ 127,600 $ 264,600 Net Cash Gain or Loss during the month $ 77,000 $ 197,300 $ (449,800) $ 182,400 $ 142,400 $ 68,400

Loan Requirment or Cash Surplus July August September October November December Cash at start of month $ 132,000 $ 209,000 $ 406,300 $ 90,000 $ 272,400 $ 414,800 Cumulative Cash $ 209,000 $ 406,300 $ (43,500) $ 272,400 $ 414,800 $ 483,200 Target Cash Balance $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 Cumulative Surplus Cash or Loans outstanding to maintain $90,000 target cash balance $ 119,000 $ 316,300 $ (133,500) $ 182,400 $ 324,800 $ 393,200

A

Monthly statement of required finance or excess funds | $ 119,000 August $ 316,300 September $ (133,500) October $ 182,400 November $ 324,800 December $ 393,200

Answer D

In this case, all the receivables are sufficient to ensure that there is no requirement for external borrowings. The revised cash surplus is as follows

Cash Gain or Loss for month July August September October November December Collections $ 372,000 $ 540,000 $ 720,000 $ 360,000 $ 360,000 $ 90,000 Payments for Labour & Raw Material General & Administrative Salaries Lease Payments Miscellaneous Expenses Income Tax Payments Design Studio Payment Total Payments 90,000 26,000 9,000 2,600 - $ $ $ $ $ 126,000 $ 26,000 $ 9,000 $ 2,600 $ - $ 881,000 26,000 9,000 2,600 64,000 - 982,600 $ $ $ $ $ $ $ 305,000 $ 26,000 $ 9,000 $ 2,600 $ - $ 132,000 $ 474,600 $ 234,000 26,000 9,000 2,600 - $ $ $ $ $ 163,000 26,000 9,000 2,600 64,000 $ $ 127,600 $ 163,600 $ 271,600 $ 264,600 Net Cash Gain or Loss during the month $ 244,400 $ 376,400 $ (262,600) $ (114,600) $ 88,400 $ (174,600) Loan Requirment or Cash Surplus July August September October November December Cash at start of month $ 132,000 $ 376,400 $ 752,800 $ 490,200 $ 375,600 $ 464,000 Cumulative Cash $ 376,400 $ 752,800 $ 490,200 $ 375,600 $ 464,000 $ 289,400 Target Cash Balance $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 Cumulative Surplus Cash or Loans outstanding to maintain $90,000 target cash balance $ 286,400 $ 662,800 $ 400,200 $ 285,600 $ 374,000 $ 199,400