Question

Sharpe Corporation’s projected sales for the first eight months of 2019 are as follows:

January	$ 90,000	May	$300,000
February	120,000	June	270,000
March	135,000	July	225,000
April	240,000	August	150,000

     Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following the sale, and 30 percent is collected in the second month following sale. November and December sales for 2018 were $220,000 and $175,000, respectively. Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March. The company’s cash balance at December 31, 2018 was $22,000; a minimum balance of $15,000 must be maintained at all times. Prepare a cash budget for Sharpe covering the first seven months of 2019.

Answer 1

Cash Budget:

	Jan	Feb	Mar	Apr	May	Jun	Jul
Beginning Cash Balance	22,000	100,000	107,500	23,500	-45,500	-23,000	68,500
Add: Collections	180,000	118,500	112,500	141,000	214,500	279,000	274,500
Total Cash Available	202,000	218,500	220,000	164,500	169,000	256,000	343,000
Less: Cash Disbursements
Payment for Raw Material	72,000	81,000	144,000	180,000	162,000	135,000	90,000
Rent	10,000	10,000	10,000	10,000	10,000	10,000	10,000
Other Expenditures	20,000	20,000	20,000	20,000	20,000	20,000	20,000
Tax prepayments			22,500			22,500
Total disbursements	102,000	111,000	196,500	210,000	192,000	187,500	120,000
Ending Cash Balance	100,000	107,500	23,500	-45,500	-23,000	68,500	223,000

Collections:

	Jan	Feb	Mar	Apr	May	Jun	Jul
10% cash sales	9,000	12,000	13,500	24,000	30,000	27,000	22,500
60% in the following month	105,000	54,000	72,000	81,000	144,000	180,000	162,000
30% in second month following sale	66,000	52,500	27,000	36,000	40,500	72,000	90,000
Total Collections	180,000	118,500	112,500	141,000	214,500	279,000	274,500

Raw material is purchased two months in advance and payment is made one month later. It means raw material is paid for one month in advance of sales

Note: Since nothing is mentioned about borrowing and maintaining minimum balance, that point is not taken into account