Question

Operating Expenses and Cash Payments Operating expenses and other cash payments for the company during the quarter include the following. ALBENIZ CORPORATION BUDGETED OPERATING EXPENSES AND OTHER CASH PAYMENTS FOR FIRST QUARTER OF 20X6 (a) Sales commissions are paid to salesmen in the amount of 5% of sales. Sales commissions are paid in the month following the sale. (b) Salaries and wages are $55,000 per month. (c) Rent expense is $4,500 per month. (d) Office supplies are estimated at 2% of sales each month, paid for in the month of purchase. @) Depreciation on office equipment and furniture is $3,000 per month. (0) Other cash operating expenses are 3% of sales each month and are paid for in the month they are incurred. The company intends to purchase new equipment and furniture in January for $5,000 and in March for $1,500. (h) The company has a payment on its bank loans coming due in February in the amount of $5,000 for principal and $500 for interest. REQUIRED: (1) Prepare a cash budget by month and in total for the first quarter of 20X6 based upon the above information. Show all appropriate computations to support your amounts. Assume the company's cash balance on January 1, 20x6 is $5,000. If the company wishes to maintain a $5,000 minimum cash balance per month, during which months would the company have to borrow money? How much would they have to borrow during those months? (2)

Answer 1

	October	November	December	January	February	March	April
Sales	475,000	425,000	450,000	400,000	500,000	550,000	625,000
Less: Bad Debts	14,250	12,750	13,500	12,000	15,000	16,500	18,750
Cash	142,500	127,500	135,000	120,000	150,000	165,000	187,500
Credit
Month1		207,338	185,513	196,425	174,600	218,250	240,075
Month2			101,365	90,695	96,030	85,360	106,700
Purchases
Total Purchase	297,500	315,000	280,000	350,000	385,000	437,500
Cash	178,500	189,000	168,000	210,000	231,000	262,500
Credit
Month 1		119,000	126,000	112,000	140,000	154,000
Net Cash	-36,000	26,838	127,878	85,120	49,630	52,110
Less: Cash Expenses
Sales Commission		23,750	21,250	22,500	20,000	25,000
Salaries and Wages		55,000	55,000	55,000	55,000	55,000
Rent		4,500	4,500	4,500	4,500	4,500
Office Supplies		8,500	9,000	8,000	10,000	11,000
Other expenses		12,750	13,500	12,000	15,000	16,500
Purchase of Equipment				5,000		1,500
Loan Repayment					5,500
Total Cash Expenses		104,500	103,250	107,000	110,000	113,500
Net Cash Inflow/ (Outflow)		-77,663	24,628	-21,880	-60,370	-61,390

In all the three months of Quarter 1 company is witnessing cash deficit. The amount of loan to be borrowed is as follows

	Jan	Feb	March
Cash Deficit	21880	60370	61390
Add: Minimum Balance	5000	5000	5000
Loan amount	26880	65370	66390

a?