Sithabiso’s Wraps is an all-organic restaurant located near State University. It is managed by Eunice Ndlovu, and Eunice is preparing her first-quarter cash budget for 2010.

It is important to her because of the variation in volume caused by the return of the university students. Help Eunice complete her cash budget and answer the questions that follow. Note the following forecast information and assumptions for Sithabiso’s Wraps:

Eunice has budgeted her revenues, cost of sales, and operating expenses based on forecasts for the months of January, February, and March.

She expects to collect 80% of revenues in the month they are generated (current month) and the remaining 20% the next month as accounts receivable (AR) based on her aging of accounts receivable.

She expects to collect in January $30,000 from accounts receivable from December.

She expects to pay 60% of the cost of sales in the month they are incurred (current month) and the remaining 40% the next month as accounts payable (AP).

She expects to pay in January $19,000 from accounts payable for cost of sales from December.

She expects to pay 70% of her operating expenses in the month they are incurred

(current month) and the remaining 30% the next month as accounts payable (AP).

She expects to pay in January $21,000 from accounts payable for operating expenses from December.

She expects to pay 100% of her nonoperating expenses in the month they are incurred.

She has rent expense of $4,000 per month.

She pays an insurance premium of $6,000 in the first month of every quarter.

Her beginning cash balance in January will be $5,000.

Ending cash balance for one month is the beginning cash balance of the next month.

®@ She requires a minimum cash balance of $5,000 at all times (for emergencies).
™ Any shortages in cash will be covered with short-term loans of $5,000 with 10%
interest.
SITHABISO’S WRAPS CASH BUDGET FOR THE FIRST QUARTER OF 2010 Given Data:
Revenues Cost of Sales Operating Expenses Nonoperating Expenses Rent Expense Insurance Premiums Schedule of Receipts (AR)
AR from December (Received in January)
Schedule of Payments (AP)
Cost of Sales Operating Expenses Nonoperating Expenses Cost of Sales from December (Paid in January)
Operating Expenses from December (Paid in January)
Cash Budget Receipts:
Food Revenues:
Current Month 80%
Second Month 20%
Disbursements:
Cost of Sales:
Current Month 60%
Second Month 40%
January 60,000 21,000 28,000 4,000 6,000 30,000 19,000 21,000 January February 132,000 46,200 36,000 4,000 Current Month 80%
60%
70%
100%
February March 96,000 33,600 32,000 4,000 Second Month 20%
40%
30%
March Operating Expenses Current Month 70%
Second Month 30%
[Se a ee Nonoperating Expenses 100%
_—$_<$<_————— ee eee Beginning Cash Balance Cash Receipts Subtotal Cash Disbursements Ending Cash Balance

a. Will Eunice have to borrow any short-term loans to cover cash shortfalls in the first quarter of the year? If so, how much money will she have to borrow, and what do you think may have caused this?

b. If Eunice has to borrow a short-term loan to cover cash shortfalls in the first quarter of the year, will she be able to pay it back in a timely manner? If so, when?

c. By the end of the quarter, will Eunice have a surplus or deficit of cash? If she has a surplus, what should she do with the extra money?

d. Overall, how do you think Eunice is doing at planning her cash receipts and cash disbursements in order to keep enough cash on hand to pay her bills?