Question
CASH BUDGETING Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of...
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 | |
| October | 360,000 | |
| 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 | 882,000 | |
| September | 307,000 | |
| October | 234,000 | |
| November | 163,000 | |
| December | 90,000 |
General and administrative salaries are approximately $28,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a month. Miscellaneous expenses are $2,800 a month. Income tax payments of $62,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period.
Prepare monthly estimates of the required financing or excess funds - that is, the amount of money Bowers will need to borrow or will have available to invest. Round your answers to the nearest dollar. Enter loans outstanding with minus sign.
| July | $ |
| August | $ |
| September | $ |
| October | $ |
| November | $ |
| December | $ |
a. Prepare a monthly cash budget for the last 6 months of 2016. If no entry required, enter "0". Use minus sign to enter losses, loans outstanding or any other negative amounts. May June July August September October November December January Collections and purchases worksheet Sales (gross) Collections During month of sale During 1st month after sale During 2nd month after sale Total collections Purchases Labor and raw materials Payments for labor and raw materials A A Cash gain or loss for month Collections Payments for labor and raw materials General and administrative salaries Lease payments Miscellaneous expenses Income tax payments Design studio payment Total payments Net cash gain (loss) during month
Loan requirement or cash surplus Cash at start of month $ $ Cumulative cash $ Target cash balance Cumulative surplus cash or loans outstanding to maintain $90,000 target cash balance $ $ $ $ $
Answers
Helen's Fashion Designs Calculation Cash budget May June July Aug Sep Oct Nov Dec Jan Collections & purchases worksheet Sales (gross) 186,000 186,000 372,000 540,000 720,000 360,000 360,000 90,000 180,000 Collections During month of sale 18,600 18,600 37,200 54,000 72,000 36,000 36,000 9,000 During 1st month after sale - 139,500 139,500 279,000 405,000 540,000 270,000 270,000 During 2nd month after sale - - 27,900 27,900 55,800 81,000 108,000 54,000 Total collections 204,600 360,900 532,800 657,000 414,000 333,000 Purchases Labor and raw materials 90,000 90,000 126,000 882,000 307,000 234,000 163,000 90,000 Payments for Labor and raw materials 90,000 90,000 126,000 882,000 307,000 234,000 163,000 Cash gain or loss for month Collections 204,600 360,900 532,800 657,000 414,000 333,000 Payments for Labor and raw materials 90,000 126,000 882,000 307,000 234,000 163,000 General and administrative salaries 28,000 28,000 28,000 28,000 28,000 28,000 Lease payments 9,000 9,000 9,000 9,000 9,000 9,000 Miscellaneous expenses 2,800 2,800 2,800 2,800 2,800 2,800 Income tax payments - - 62,000 - - 62,000 Desig studio payments - - - 180,000 - - Total payments 129,800 165,800 983,800 526,800 273,800 264,800 Net cash gain (loss) during month 74,800 195,100 (451,000) 130,200 140,200 68,200 Collections less Total payments Loan requirement or cash surplus Cash at start of month 132,000 206,800 401,900 (49,100) 81,100 221,300 Cumulative cash 206,800 401,900 (49,100) 81,100 221,300 289,500 Net cash gain (loss) plus Cash at start of month Target cash balance 90,000 90,000 90,000 90,000 90,000 90,000 Cumulative surplus cash or loan outstanding to maintain $90,000 target cash 116,800 311,900 (139,100) (8,900) 131,300 199,500 Cumulative cash less Target cash balance Prepare monthly estimates of the required financing or excess funds July 116,800 Aug 311,900 Sep (139,100) Oct (8,900) Nov 131,300 Dec 199,500
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