Question

On March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget for March, April, and May. All of the company’s sales are made on account. The following information has been provided by Spicer’s management.

  

Month	Credit Sales
January	$	300,000	(actual)
February		400,000	(actual)
March		526,000	(estimated)
April		646,000	(estimated)
May		800,000	(estimated)

  

The company’s collection activity on credit sales historically has been as follows.

  

Collections in the month of the sale	50	%
Collections one month after the sale	30
Collections two months after the sale	15
Uncollectible accounts	5

  

Spicer’s total cash expenditures for March, April, and May have been estimated at $1,200,000 (an average of $400,000 per month). Its cash balance on March 1 of the current year is $500,000. No financing or investing activities are anticipated during the second quarter.

  

Compute Spicer’s budgeted cash balance at the ends of March, April, and May.

Answer 1

Cash balance on March 1	$             500,000
Collections on January sales
300000*0.15	$               45,000
Collections on February sales
400000*0.3	$             120,000
Collections on March sales
526000*0.5	$             263,000
Total Cash Available	$             928,000
Less: Expenditures	$          (400,000)
Cash Balance on March 31	$             528,000
Cash balance on April 1	$             528,000
Collections on February sales
400000*0.15	$               60,000
Collections on March sales
526000*0.3	$             157,800
Collections on April sales
646000*0.5	$             323,000
Total Cash Available	$         1,068,800
Less: Expenditures	$          (400,000)
Cash Balance on April 30	$             668,800
Cash balance on May 1	$             668,800
Collections on March sales
526000*0.15	$               78,900
Collections on April sales
646000*0.3	$             193,800
Collections on May sales
800000*0.5	$             400,000
Total Cash Available	$         1,341,500
Less: Expenditures	$          (400,000)
Cash Balance on May 31	$             941,500