6. Cash budget Aa Aa Mellon 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: Mellon's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Mellon's sales are made on credit with terms of 2/10, net 30. Mellon's experience is that 25% is collected from customers who take advantage of the discount, 65% 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 Mellon's finished product. The purchases are generally made one month in advance of the sale, and Mellon pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,100 million, then purchases during June would be $550 ($1,100 million x 0.50), and this amount would be paid in July. Other cash expenses include wages and salaries at 19% 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 Mellon's targeted cash balance is $200, and the estimated cash on hand on July 1 is $199. Use the preceding information to fill in the missing amounts in the following cash budget. Mellon Company Cash Budget For the Six Months Ended December 31, Year 1 ($ millions) June May $950 July $1,000 $980 August $1,010 515 Credit sales Credit purchases September $1,030 525 October $1,050 540 December $1,100 November $1,080 550 500 July August September October November December 247 257 265 683 270 702 650 670 252 657 100 $1,009 98 103 105 101 $1,028 $995 $1,051 $1,077 500 505 192 515 196 540 205 190 550 209 40 40 40 40 40 Cash receipts Collections from this month's sales Collections from previous month's sales Collections from sales two months previously Total cash receipts 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 50 51 52 54 55 59 1,000 $1,803 $839 $788 $839 $854 $207 $138 199 -$794 544 $149 -250 $223 111 337 $337 200 $544 200 -$101 200 -$301 $212 -101 $111 200 -$89 $334 200 $137 $344 $134 the information provided in the budget to complete the following sentences. Ion 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 six months of the year, Mellon will $ to end the year with a cash of $ and a cash of $ Ion Company will want a credit line of at least $ to cover the month with the greatest shortfall, and the financial managers can the bank to ect that they will be able to invest up to $ in short-term marketable securities