5. Cash budget

Boudreaux Companys financial managers are meeting with the companys bank to renew their line of credit and discuss their investment needs. They have prepared the companys operating cash budget for the last six months of the year.

The following budget assumptions were used to construct the budget:

	Boudreauxs total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget.
	Boudreauxs sales are made on credit with terms of 2/10, net 30. Boudreauxs experience is that 15% is collected from customers who take advantage of the discount, 75% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts.
	The cost of materials averages 50% of Boudreauxs finished product. The purchases are generally made one month in advance of the sale, and Boudreaux pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $99.00 million, then purchases during June would be $49.50 million ($99.00 million x 50%), and this amount would be paid in July.
	Other cash expenses include wages and salaries at 16% of monthly sales, monthly rent of $36.00 million, and other expenses equal to 5% of monthly sales. Estimated tax payments of $175.50 million and $185.40 million are required to be paid on July 15 and October 15, respectively. In addition, a $900.00 million payment for a new plant must be made in September.
	Assume that Boudreauxs targeted cash balance is $145.99 million, and the estimated cash on hand on July 1 is $145.99 million.

($ millions) Cash Budget May Jun Jul Aug Sep Oct Dec Credit sales $85.50 $88.20 $90.00 $90.90 $92.70 $94.50 $97.20 $99.00 Credit purchases 45.00 46.35 47.25 48.60 49.50 Jul Aug Sep Oct Nov Dec Cash receipts Collections from this $13.36 $13.63 $13.89 $14.29 $14.55 month's sales Collections from 67.50 68.18 69.53 70.88 72.90 previous month's sales 8.82 9.00 9.09 9.27 9.45 Collections from sales two months previously Total cash receipts $89.68 $90.81 $92.51 $94.44 $96.90 $45.00 $45.45 $46.35 $48.60 $49.50 Cash disbursements Payments for credit purchases Wages and salaries Rent 14.40 14.54 14.83 15.55 15.84 36.00 36.00 36.00 36.00 36.00 Other expenses 4.50 4.55 4.64 4.86 4.95 Taxes 175.50 900.00 Payment for plant construction Total cash $275.40 $100.54 $1,001.82 $105.01 $106.29 disbursements Net cash flow -$187.47 -$10.86 -$911.01 -$195.99 -$10.57 -$9.39 (Receipts - disbursements) Beginning cash balance 145.99 -$41.48 -$52.34 -$963.35 -$1,159.34 -$1,169.91 -$41.48 - $52.34 -$1,159.34 -$1,169.91 -$1,179.30 Ending cash balance Target (minimum) cash balance -145.99 -145.99 -145.99 -145.99 -145.99 -$187.47 -$198.33 -$1,305.33 -$1,315.90 -$1,325.29 Surplus (shortfall) cash Boudreaux Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Boudreaux will to end the year with a cash of and a cash of Boudreaux Company will want a credit line of at least to cover the month with the greatest shortfall, and the financial managers can tell the bank to expect that they will be able to invest up to in short-term marketable securities