Appendix, cash budgeting for distributor. (CMA) Alpha-Tech, a rapidly growing distribu¬

tor of electronic components, is formulating its plans for 2008. Carol Jones, the firm’s marketing director, has completed the revenue budget presented here:

Alpha-Tech 2008 Budgeted Revenues

(in thousands)

Month Revenues Month Revenues January $10,800 July $18,000 February 12,000 August 18,000 March 10,800 September 19,200 April 13,800 October 19,200 May 15,000 November 18,000 June 16,800 December 20,400 Phillip Singh, an accountant in the planning and budgeting department, is responsible for preparing the cash flow projection. The following information will be used in preparing the cash flow projection:

a. Alpha-Tech’s excellent record in accounts receivable collection is expected to continue: 60%

of billings are collected the month after the sale and the remaining 40% two months after.

b. The purchase of electronic components is Alpha-Tech’s largest expenditure and is esti¬

mated to be 40% of revenues. Alpha-Tech receives 70% of the parts one month before sale and 30% during the month ofsale.

c. Historically, 75% of accounts payable have been paid one month after receipt of the pur¬

chased components and the remaining 2 5 % paid two months after receipt.

d. Hourly wages and fringe benefits, estimated to be 30% of the current month’s revenues, are paid in the month incurred.

e. General and administrative expenses are projected to be $18,744,000 for the year. The breakdown of these expenses is as follows:

2008 Budgeted General and Administrative Costs

(in thousands)

Salaries and fringe benefits $ 3,840 Promotion 4,560 Property taxes 1,632 Insurance 2,400 Utilities 2,160 Amortization 4,152 Total $18,744 All expenditures are paid uniformly throughout the year, except the property taxes, which are paid at the end of each quarter in four equal instalments.

f. Income tax payments are made at the beginning of each calendar quarter based on the income of the prior quarter. Alpha-Tech is subject to an effective income tax rate of 40%.
Alpha-Tech’s operating income for the first quarter of 2008 is projected to be $3,840,000.
The company pays 100% ofthe estimated tax payment.
g. Alpha-Tech maintains a minimum cash balance of $600,000. Ifthe cash balance is less than $600,000 at the end of each month, the company borrows amounts necessary to maintain this balance. All amounts borrowed are repaid out of subsequent positive cash flow. The projected April 1, 2008, opening balance is $600,000.
h. Alpha-Tech has no short-term debt as ofApril 1, 2008.
i. Alpha-Tech uses a calendar year for both financial reporting and tax purposes.
Required 1. Prepare a cash budget for Alpha-Tech by month for the second quarter of 2008. Ignore any interest expense associated with borrowing.
2. Discuss why cash budgeting is important for Alpha-Tech.