Activity:

Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2021 and 2022:

May 2021	$160,000
June	160,000
July	320,000
August	480,000
September	640,000
October	320,000
November	320,000
December	80,000
January 2022	160,000

Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials:

May 2021	$80,000
June	80,000
July	96,000
August	736,000
September	272,000
October	192,000
November	144,000
December	80,000

General and administrative salaries are approximately $30,000 a month. Lease payments under long-term leases are $10,000 a month. Depreciation charges are $40,000 a month. Miscellaneous expenses are $4,500 a month. Income tax payments of $73,000 are due in September and December. A progress payment of $190,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $126,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period. Do not round intermediate calculations. Round your answers to the nearest dollar. If your answer is zero, enter "0".

a. Prepare a monthly cash budget for the last 6 months of 2021. All payments and expenses should be entered as positive numbers. Net cash losses, negative cash balance, negative cumulative cash, and cumulative loans outstanding, if any, should be indicated by a minus sign.

	July	August	September	October	November	December
Collections and purchases worksheet
Sales (gross)	$	$	$	$	$	$
Collections
During month of sale	$	$	$	$	$	$
During 1st month after sale	$	$	$	$	$	$
During 2nd month after sale	$	$	$	$	$	$
Total Collections	$	$	$	$	$	$
Purchases
Labor and raw materials	$	$	$	$	$	$
Payments for labor and raw materials	$	$	$	$	$	$
Cash gain or loss for month
Collections	$	$	$	$	$	$
Payments for labor and raw materials	$	$	$	$	$	$
general and administrative salaries	$	$	$	$	$	$
lease payments	$	$	$	$	$	$
miscellaneous expenses	$	$	$	$	$	$
income tax payments	$	$	$	$	$	$
design studio payments	$	$	$	$	$	$
total payments	$	$	$	$	$	$
net cash gain (loss) during month	$	$	$	$	$	$
Loan requirement or cash surplus
Cash at start of month	$	$	$	$	$	$
Cumulative cash	$	$	$	$	$	$
Target cash balance	$	$	$	$	$	$
Cumulative surplus cash or loans outstanding to maintain $90,000
target cash balance	$	$	$	$	$	$

b. Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. Required financing, if any, should be indicated by a minus sign.

	Required financing or excess funds
July	$
August	$
September	$
October	$
November	$
December	$

c. If Bowers' customers began to pay late, collections would slow down, thus increasing the required loan amount. If sales declined, this also would have an effect on the required loan. Do a sensitivity analysis that shows the effects of these two factors on the maximum loan requirement. Enter your answers as positive numbers.

		%	Collections	in	2nd	month
Changes in sales	0%	15%	30%	45%	60%	75%	90%
-100%	$	$	$	$	$	$	$
-75%	$	$	$	$	$	$	$
-50%	$	$	$	$	$	$	$
-25%	$	$	$	$	$	$	$
0%	$	$	$	$	$	$	$
25%	$	$	$	$	$	$	$
50%	$	$	$	$	$	$	$
75%	$	$	$	$	$	$	$
100%	$	$	$	$	$	$	$