Lewis Printing has projected its sales for the first 8 months of 2019 as shown in the table below.

Lewis collects 20 percent of its sales in the month of the sale, 50 percent in the month following the sale, and the remaining 30 percent 2 months following the sale. During November and December of 2018, Lewis’s sales were $220,000 and $175,000, respectively. Lewis purchases raw materials 2 months in advance of its sales. These purchases are equal to 65 percent of its final sales. The supplier is paid 1 month after delivery. Thus, purchases for April sales are made in February and payment is made in March. In addition, rent expense is $10,000 per month and other expenses total $20,000 a month. Beginning in March quarterly tax prepayments of $22,500 are made. The company’s cash balance as of December 31, 2018, was $28,000; a minimum balance of $25,000 must be maintained at all times to satisfy the firm’s bank line of credit agreement. Lewis has arranged with its bank for short-term credit at an interest rate of  2 percent per annum (1 percent per month) to be paid monthly. Borrowing to meet estimated monthly cash needs takes place at the end of the month, and interest is not paid until the end of the following month. Consequently, if the firm needed to borrow $50,000 during April, then it would pay $500 (= 0.01 × $50,000) in interest during May. Finally, Lewis follows a policy of repaying its outstanding short-term debt in any month in which its cash balance exceeds the minimum desired balance of $25,000. 

a. Lewis needs to know what its cash requirements will be for the next 6 months so that he can renegotiate the terms of his short-term credit agreement with his bank, if necessary. To address this problem, prepare a 6-month cash budget. Also recalculate the budget for a {20 percent variation in its monthly sales.

b. Lewis has a $20,000 note due at the end of June. Will the firm have sufficient cash to repay the loan?

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January $100,000 April $300,000 July 120,000 May 150,000 June 200,000 $200,000 February 275,000 August 180,000 March