CASH BUDGET

AMERICAN AIRLINES (CASE STUDY) The following information on revenue and costs were made available to you: Month Sales Purchase ($'000) October 2019 November 2019 December 2019 January 2020 February 2020 March 2020 April 2020 140 000 105 000 157 500 87 500 105 000 122 500 105 000 ($'000) 113 750 78 750 131 250 61 250 78 750 96 250 78 750 Additional notes: i. The cash balance on January 01st 2020 was $26 250; ii. 20% of sales is usually attributable to cash sales while the remainder is settled: a. One month after sales: 60%; b. Two months after sales: 20%. iii. 2% of sales is allocated to Sales Expenses and is paid in the month of sale; iv. 50% of cost of purchases is paid in the month of purchase and the next 50% in the following month; V. 3% of purchases is allocated to Purchases Expenses and is paid in the following month after purchase; vi. New equipment of $15 750 to be purchased in January and is to be paid in three equal instalments from the same month; vii. Outdated equipment to be sold in February for $4 375; viii. Salaries are $5 250 per month; ix. Utilities will be $12 250 in January and is expected to increase by 10% each month; and x. The firm plans to take a loan in March at an interest rate of 15% per annum. The loan amount will be $70 000. Interest is to be paid on a monthly basis equally, starting in March. Required: a. Prepare a cash budget for the four-month period ending April 30th 2020