6. Cash budget Aa Aa E Wallace Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year. The following budget assumptions were used to construct the budget: Wallace's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Wallace's sales are made on credit with terms of 2/10, net 30. Wallace's experience is that 20% is collected from customers who take advantage of the discount, 70% 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 45% of Wallace's finished product. The purchases are generally made one month in advance of the sale, and Wallace pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,100 million, then purchases during June would be $495 ($1,100 million x 0.45), and this amount would be paid in July. Other cash expenses include wages and salaries at 15% of sales, monthly rent of $40 million, and other expenses at 5% of sales. Estimated tax payments of $59 million and $61 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,000 million payment for a new plant must be made in September. Assume that Wallace's targeted cash balance is $300, and the estimated cash on hand on July 1 is $293. Use the preceding information to fill in the missing amounts in the following cash budget. ($ millions) May $950 June $980 450 Credit sales Credit purchases $1,000 December $1,100 $1,010 464 October $1,050 486 $1,030 473 November $1,080 495 July August September October November December 198 Cash receipts Collections from this month's sales Collections from previous month's sales Collections from sales two months previously Total cash receipts 216 756 700 202 707 100 $1,009 206 721 101 $1,028 212 735 103 $1,050 98 105 $996 $1,077 464 486 155 Cash disbursements Payments for credit purchases Wages and salaries Rent Other expenses Taxes Payment for plant construction Total cash disbursements Net cash flow (Receipts - disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash 1,000 $1,711 $749 $698 711 $742 $755 $228 $322 -$702 819 293 $298 521 $819 300 $519 $521 300 $243 117 $360 300 $60 $308 360 $668 300 668 $990 300 $690 $221 $368 Use the information provided in the budget to complete the following sentences. Wallace 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, Wallace will to end the year with a cash of $ and a cash of $ Wallace 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