Question

2) In the preparation of a quarterly cash budget, the following revenue and cost information have been compiled. Month August (actual) September (actual) October (forecast) November (forecast) December (forecast) Sales $3,000,000 $4,500,000 $1,000,000 $1,500,000 $2,000,000 Purchases $3,500,000 $2,000,000 $ 500,000 $ 750,000 $1,000,000 To prepare and to evaluate a cash budget for the months of October, November, and December, the information shown below is used: • The firm collects 60 percent of sales for cash and 40 percent of its sales one month later. • Interest income of $50,000 on marketable securities will be received in December. • The firm pays cash for 40 percent of its purchases. • The firm pays for 60 percent of its purchases the following month. Salaries and wages amount to 15 percent of the preceding month's sales. Sales commissions amount to 2 percent of the preceding month's sales. Lease payments of $100,000 must be made each month. • A principal and interest payment on an outstanding loan is due in December of $150,000. • The firm pays dividends of $50,000 at the end of the quarter. • Fixed assets costing $600,000 will be purchased in December. • Depreciation expense each month of $45,000. • The firm has a beginning cash balance in October of $100,000 and maintains a minimum cash balance of $200,000.

Answer 1

Cash Budget For the quarter ending December 31
	October	November	December	Quarter
Beginning cash balance	$ 100,000	$ 235,000	$ 665,000	$ 100,000
Add: Cash receipts from Sales	2,400,000	1,300,000	1,800,000	5,500,000
Interest Income	-	-	50,000	50,000
Total Cash Available	2,500,000	1,535,000	2,515,000	5,650,000
Less: Cash disbursements for
Purchases	1,400,000	600,000	850,000	2,850,000
Salaries and Wages	675,000	150,000	225,000	1,050,000
Sales Commission	90,000	20,000	30,000	140,000
Lease Payments	100,000	100,000	100,000	300,000
Loan payment	0	0	150,000	150,000
Dividends	0	0	50,000	50,000
Purchase of fixed assets	0	0	600,000	600,000
Total cash disbursements	2,265,000	870,000	2,005,000	5,140,000
Cash Surplus ( Deficiency )	235,000	665,000	510,000	510,000
Financing required	0	0	0	0
Ending cash balance	235,000	665,000	510,000	510,000

Workings:

a.

Schedule of Cash Receipts from Sales
	October	November	December
Cash Sales	$ 600,000	$ 900,000	$ 1,200,000
September Sales	1,800,000
October Sales		400,000
November Sales			600,000
Total Cash Receipts	2,400,000	1,300,000	1,800,000

b.

Schedule of Cash Disbursements for Purchases
	October	November	December
Cash Purchases	$ 200,000	$ 300,000	$ 400,000
September purchases	1,200,000
October purchases		300,000
November purchases			450,000
Total Cash Disbursements for Purchases	1,400,000	600,000	850,000