Question

Alpha-Tech, a rapidly growing distributor of electronic components, is formulating its plans for 20x5. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

ALPHA-TECH
20x5 Forecasted Sales
(in thousands)
Month		Sales
January		$	9,000
February			10,000
March			9,000
April			11,500
May			12,500
June			14,000
July			15,000
August			15,000
September			16,000
October			16,000
November			15,000
December			17,000

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. The following information will be used in preparing the cash flow projection.

• Alpha-Tech’s excellent record in accounts receivable collection is expected to continue. Sixty percent of billings are collected the month after the sale, and the remaining 40 percent two months after.
• The purchase of electronic components is Alpha-Tech’s largest expenditure, and each month’s cost of goods sold is estimated to be 40 percent of sales. Seventy percent of the parts are received by Alpha-Tech one month prior to sale, and 30 percent are received during the month of sale.
• Historically, 75 percent of accounts payable has been paid one month after receipt of the purchased components, and the remaining 25 percent has been paid two months after receipt.
• Hourly wages and fringe benefits, estimated to be 30 percent of the current month’s sales, are paid in the month incurred.
• General and administrative expenses are projected to be $15,620,000 for the year. The breakdown of these expenses is presented in the following schedule. All cash expenditures are paid uniformly throughout the year, except the property taxes, which are paid in four equal installments at the end of each quarter.
  

  20x5 Forecasted General and Administrative Costs
  (in thousands)
  Salaries and fringe benefits	$	3,200
  Promotion		3,800
  Property taxes		1,360
  Insurance		2,000
  Utilities		1,800
  Depreciation		3,460
  Total	$	15,620

• Income-tax payments are made at the beginning of each calendar quarter based on the income of the prior quarter. Alpha-Tech is subject to an income-tax rate of 40 percent. Alpha-Tech’s operating income for the first quarter of 20x5 is projected to be $3,200,000. The company pays 100 percent of the estimated tax payment.
• Alpha-Tech maintains a minimum cash balance of $500,000. If the cash balance is less than $500,000 at the end of each month, the company borrows amounts necessary to maintain this balance. All amounts borrowed are repaid out of the subsequent positive cash flow. The projected April 1, 20x5, opening balance is $500,000.
• Alpha-Tech has no short-term debt as of April 1, 20x5.
• Alpha-Tech uses a calendar year for both financial reporting and tax purposes.

Required:
1. Prepare a cash budget for Alpha-Tech by month for the second quarter of 20x5. For simplicity, ignore any interest expense associated with borrowing. (Negative amounts should be indicated by a minus sign. Enter your answers in whole dollars, not in thousands.)
ALPHA-TECH Cash Budget For the Second Quarter of 20x5 April May June $ $ 0 0 $ $ 0 0 $ $ 0 Beginning balance Collections: February sales March sales April sales May sales Total receipts Total cash available Disbursements: Accounts payable Wages General and administrative Property taxes Income taxes Total disbursements Cash balance Cash borrowed Cash repaid Ending balance $ $ 0 0 $ $ 0 0 $ $ 0 $

Answer 1

Alpha-Tech Cash Budget For the Second Quarter 20x5
	April	May	June
beginning balance	500,000	500,000	1,230,000
Collections
February sales	4,000,000
March sales 9000000*60%	5,400,000	3,600,000
April sales		6,900,000	4,600,000
May sales			7,500,000
Total Receipts	9,400,000	10,500,000	12,100,000
Total cash available	9,900,000	11,000,000	13,330,000
Disbursements
Accounts payable	4155000	4735000	5285000
Wages 11500000*30% 12500000*30% 14000000*30%	3450000	3750000	4200000
General & Admin (15620-3460-1360)/12	900000	900000	900000
Property taxes			340,000
Income taxes 3,200,000*30%	1280000
Total disbursements	9785000	9385000	10725000
Cash balance	115,000	1,615,000	2,605,000
Cash borrowed 500000-115000	385,000
Cash repaid		-385,000
Ending Balance	500,000	1,230,000	2,605,000

Cost of goods sold
Month	40% of sales	timming	Feb	Mar	Apr	May
Feb 10000000*40%	4,000,000	0.3	1,200,000
Mar 9000000*40%	3,600,000	0.7	2,520,000
Mar	3,600,000	0.3		1,080,000
Apr	4,600,000	0.7		3,220,000
Apr	4,600,000	0.3			1,380,000
May	5,000,000	0.7			3,500,000
May	5,000,000	0.3				1,500,000
June	5,600,000	0.7				3,920,000
			3,720,000	4,300,000	4,880,000	5,420,000

Payments
Feb	0.25				930,000
Mar	0.75				3,225,000
Mar	0.25					1,075,000
Apr	0.75					3,660,000
Apr	0.25						1,220,000
May	0.75						4,065,000
			0	0	4155000	4735000	5285000