Question

Hansborough's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Hansborough's sales are made on credit with terms of 2/10, net 30. Hansborough's experience is that 15% is collected from customers who take advantage of the discount, 75% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. . The cost of materials averages 55% of Hansborough's finished product. The purchases are generally made one month in advance of the sale, and Hansborough pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $726 ($1,320 lion x 0.55), and this amount would be paid in July. Other cash expenses include wages and salaries at 20% of sales, monthly rent of $48 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 lion payment for a new plant must be made in September Assume that Hansborough's targeted cash balance is $200, and the estimated cash on hand on July 1 is $154 ·

Answer 1

	July	Sept	Oct.
Credit sales	1,200	1,236	1,260
Credit purchases (55% of next month's sales)	667	693	713
Cash receipts:
Collection from cu.month(15%)	176	182	185
From last month(75%)	882	909	927
From 2nd last month (10%)	114	120	121
Total cash receipts (A)	1,172	1,211	1,233
Cash disbursements:
Payment for credit purchases	660	680	693
Wages and salaries	240	247	252
Rent	48	48	48
Other expenses	60	62	63
Taxes	70		73
Payment for plant construction		1,200
Total cash disbursements (B)	1,078	2,237	1,129
Net cash flow (A-B)	94	-1,026	104
Begn. cash bal.	154	426	-600
Endg. cash bal.	248	-600	-496
Target cash bal.	200	200	200
Surplus (shortfall) cash	48	-800	(696)