Question: Cash Receipts 25% of sales are in cash and collected in the month the sale...
Question:
Cash Receipts
25% of sales are in cash and collected in the month the sale is made and 75% are on credit and collected in the month after the sale. December 2017 sales were $3 million. The sales forecast for 2018 is as follows:
January 2,800,000
February 2,500,000
March 3,200,000
April 3,400,000
May 3,600,000
June 3,600,000
July 3,800,000
August 4,000,000
September 3,600,000
October 3,400,000
November 2,800,000
December 2,600,000
Cash Disbursements
The disbursements for this firm are as follows:
- Payments for raw materials are calculated based on 50% of current month sales.
- Operating expenses are $700,000 per month.
- Corporate overhead is $100,000 per month.
- $1.5 million semi-annual bond interest payments are due in May and November.
- $1.8 million in new equipment will arrive in May and must be paid for in July.
- $1.2 million in new equipment will arrive in September and must be paid for in October.
- A $1.4 million insurance premium is due in February.
- $900,000 quarterly real estate tax payments are due in February, May, August, and November
Cash/Credit Line Information
The company must have a minimum cash balance of $200,000 at month-end and the cash balance at the end of December 2017 is $750,000. The company maintains a $1 million credit line for short-term liquidity purposes, none of which is outstanding at the end of December 2017. Do NOT include interest expense on the credit line in the calculations.
Required:
Dec Jan Feb Mar Apr May Jun Jul
Total Sales 3,000,000 2,800,000 2,500,000 3,200,000 3,400,000 3,600,000 3,600,000 3,800,000
Aug Sep Oct Nov Dec
4,000,000 3,600,000 3,400,000 2,800,000 2,600,000
Cash Receipts:
Month of sale (25%)
First month (75%)
Total collections
Cash Disbursements:
Purchases (50%)
Operating Expenses
Corporate Overhead
Bond Interest Payment
Equipment Purchase
Insurance
Real Estate Taxes
Total Disbursements
Net Monthly Change
Beginning Cash Balance
Borrowings (Repayments)
Ending Cash Balance 750000 (Jan)
Cumulative Borrowing
Homework Answers
Cash Budget for the year 2018:
| December | January | February | March | April | May | June | July | August | September | October | November | December | |
| a. Opening Cash Balance ($) | 7,50,000 | 15,00,000 | 2,00,000 | 2,00,000 | 9,00,000 | 2,00,000 | 3,50,000 | 2,00,000 | 2,00,000 | 9,50,000 | 8,00,000 | 2,00,000 | |
| b. Total Sales ($) | 30,00,000 | 28,00,000 | 25,00,000 | 32,00,000 | 34,00,000 | 36,00,000 | 36,00,000 | 38,00,000 | 40,00,000 | 36,00,000 | 34,00,000 | 28,00,000 | 26,00,000 |
| Cash Receipts: | |||||||||||||
| c. Month of sale (25%) ($) | 7,50,000 | 7,00,000 | 6,25,000 | 8,00,000 | 8,50,000 | 9,00,000 | 9,00,000 | 9,50,000 | 10,00,000 | 9,00,000 | 8,50,000 | 7,00,000 | 6,50,000 |
| ($30,00,000 * 25%) | ($28,00,000 * 25%) | ($25,00,000 * 25%) | ($32,00,000 * 25%) | ($34,00,000 * 25%) | ($36,00,000 * 25%) | ($36,00,000 * 25%) | ($38,00,000 * 25%) | ($40,00,000 * 25%) | ($36,00,000 * 25%) | ($34,00,000 * 25%) | ($28,00,000 * 25%) | ($26,00,000 * 25%) | |
| d. First Month (75%) ($) | 22,50,000 | 21,00,000 | 18,75,000 | 24,00,000 | 25,50,000 | 27,00,000 | 27,00,000 | 28,50,000 | 30,00,000 | 27,00,000 | 25,50,000 | 21,00,000 | |
| ($30,00,000 * 75%) | ($28,00,000 * 75%) | ($25,00,000 * 75%) | ($32,00,000 * 75%) | ($34,00,000 * 75%) | ($36,00,000 * 75%) | ($36,00,000 * 75%) | ($38,00,000 * 75%) | ($40,00,000 * 75%) | ($36,00,000 * 75%) | ($34,00,000 * 75%) | ($28,00,000 * 75%) | ||
| e. Total collections ($) (c + d) | 7,50,000 | 29,50,000 | 27,25,000 | 26,75,000 | 32,50,000 | 34,50,000 | 36,00,000 | 36,50,000 | 38,50,000 | 39,00,000 | 35,50,000 | 32,50,000 | 27,50,000 |
| Cash disbursements: | |||||||||||||
| f. Purchases (50%) (b * 50%) ($) | 14,00,000 | 12,50,000 | 16,00,000 | 17,00,000 | 18,00,000 | 18,00,000 | 19,00,000 | 20,00,000 | 18,00,000 | 17,00,000 | 14,00,000 | 13,00,000 | |
| ($28,00,000 * 50%) | ($25,00,000 * 50%) | ($32,00,000 * 50%) | ($34,00,000 * 50%) | ($36,00,000 * 50%) | ($36,00,000 * 50%) | ($38,00,000 * 50%) | ($40,00,000 * 50%) | ($36,00,000 * 50%) | ($34,00,000 * 50%) | ($28,00,000 * 50%) | ($26,00,000 * 50%) | ||
| g. Operating Expenses ($) | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | 7,00,000 | |
| h. Corporate overhead ($) | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | 1,00,000 | |
| i. Bond Interest payment ($) | - | - | - | - | 15,00,000 | - | - | - | - | - | 15,00,000 | - | |
| j. Equipment Purchase ($) | - | - | - | - | - | - | 18,00,000 | - | - | 12,00,000 | - | - | |
| k. Insurance ($) | - | 14,00,000 | - | - | - | - | - | - | - | - | - | - | |
| l. Real Estate Taxes ($) | - | 9,00,000 | - | - | 9,00,000 | - | - | 9,00,000 | - | - | 9,00,000 | - | |
| m. Total cash disbursemets (f+g+h+i+j+k+l) ($) | 22,00,000 | 43,50,000 | 24,00,000 | 25,00,000 | 50,00,000 | 26,00,000 | 45,00,000 | 37,00,000 | 26,00,000 | 37,00,000 | 46,00,000 | 21,00,000 | |
| n. Cash position at the end of the month (a + e -m) ($) | 15,00,000 | -1,25,000 | 4,75,000 | 9,50,000 | -6,50,000 | 12,00,000 | -5,00,000 | 3,50,000 | 15,00,000 | 8,00,000 | -5,50,000 | 8,50,000 | |
| o. Target Cash balance ($) | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | 2,00,000 | |
| p. Borrowings / (Repayment) | - | 3,25,000 | -2,75,000 | -50,000 | 8,50,000 | -8,50,000 | 7,00,000 | -1,50,000 | -5,50,000 | - | 7,50,000 | -6,50,000 | |
| q. Ending cash balance (n + p) ($) | 15,00,000 | 2,00,000 | 2,00,000 | 9,00,000 | 2,00,000 | 3,50,000 | 2,00,000 | 2,00,000 | 9,50,000 | 8,00,000 | 2,00,000 | 2,00,000 | |
| r. Cumulative Borrowings ($) | - | 3,25,000 | 50,000 | - | 8,50,000 | - | 7,00,000 | 5,50,000 | - | - | 7,50,000 | 1,00,000 | |
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