Question

4. Cash Budget (20 points) The following information pertains to Monroe Company: Month December January February March Sales $130,000 $68,000 $87,000 $106,000 Purchases $65,000 $35,000 $46,000 $48,000 • Cash is collected from customers in the following manner: o Month of sale 30% o Month following the sale 65% o Written off as uncollectible 5% 45% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month. Labor costs are 20% of sales. Other operating costs are $42,000 per month (including $8,000 of depreciation). Both of these are paid in the month incurred. The cash balance on January 1 is $6,900. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000 at the beginning of the month. Interest on any borrowings is paid when principle is repaid. Repayments in $1,000 increments and interest payments are made at the end of the month with interest charged at a rate of 1% a month. Prepare a cash budget for January, February and March and for the first quarter.

Answer 1

		SALES BUDGET
		Collection in January for December Sales	$84,500	(130000*65%)
		Collection in February for January Sales	$44,200	(68000*65%)
		Collection in March for February Sales	$56,550	(87000*65%)
			December	January	February	March
	A	Sales	$130,000	$68,000	$87,000	$106,000
	B	Collection of the months sale(30%)		$20,400	$26,100	$31,800
	C	Collection from previous months sale(65%)		$84,500	$44,200	$56,550
	D=B+C	Total Collection of the month		$104,900	$70,300	$88,350
		PURCHASE BUDGET
		Payment for December Purchase in January	$35,750	(65000*55%)
		Payment for January Purchase in February	$19,250	(35000*55%)
		Payment for February Purchase in March	$25,300	(46000*55%)
			December	January	February	March
	A	Purchases	$65,000	$35,000	$46,000	$48,000
	B	Payment for the months purchase(45%)		$15,750	$20,700	$21,600
	C	Payment for previous month's purchase(55%)		$35,750	$19,250	$25,300
	D=B+C	Total payment in the month		$51,500	$39,950	$46,900
		LABOR COST BUDGET
			December	January	February	March
		Sales	$130,000	$68,000	$87,000	$106,000
		Labor Cost (20%)		$13,600	$17,400	$21,200
		CASH    BUDGET
			January	February	March
	A	Beginning Cash Balance	$6,900	$12,700	$6,000
	B	Cash Collection during the month	$104,900	$70,300	$88,350
	C=A+B	Total Cash Available	$111,800	$83,000	$94,350
		Cash Disbursements:
	D	Payment for purchase	$51,500	$39,950	$46,900
	E	Payment for labor cost	$13,600	$17,400	$21,200
	F	Cash Payment for other costs(42000-8000)	$34,000	$34,000	$34,000	(Note: Depreciation cost is not a cash cost)
	G=D+E+F	Total Cash disbursement	$99,100	$91,350	$102,100
	H=C-G	Cash excess/(deficit)	$12,700	($8,350)	($7,750)
	I	Minimum balance required	$6,000	$6,000	$6,000
	J	Amount borrowed/(repaid)	$0	$14,350	$13,750
	K	Interest paid	$0	$0	$0
	L=H+J-K	Ending Balance	$12,700	$6,000	$6,000