Cash Budget

Friendly Freddie's is an independently owned major appliance and electronics discount chain with seven stores located in a Midwestern metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet payment schedules to creditors. Fred Ferguson, founder of the chain, has established a banking relationship that provides a $$200,000$ line of credit to Friendly Freddie's. The bank requires that a minimum balance of $$8,120$ be kept in the chain's checking account at the end of each month. When the balance goes below $$8,120,$ the bank automatically extends the line of credit in multiples of $$1,000$ so that the checking account balance is at least $$8,120$ at month$-$end.

Friendly Freddie's attempts to borrow as little as possible and repays the loans quickly in multiples of $$1,000$ plus $2$ percent monthly interest on the entire loan balance. Interest payments and any principal payments are paid at the end of the month following the loan. The chain currently has no outstanding loans.

The following cash receipts and disbursements data apply to the fourth quarter of the current calendar year.

Estimated beginning cash balance $ $9,040$

Estimated cash sales:

October $14,000$

November $29,390$

December $44,160$

Sales on account:

July $($actual$)129,000$

August $($actual$)103,400$

September $($actual$)128,100$

October $($estimated$)135,100$

November $($estimated$)142,400$

December $($estimated$)187,900$

Projected cash collection of sales on account is estimated to be $68$ percent in the month following the sale, $22$ percent in the second month following the sale, and $8$ percent in the third month following the sale. The $2$ percent beyond the third month following the sale is determined to be uncollectible. In addition, the chain is scheduled to receive $$13,100$ cash on a note receivable in October.

All inventory purchases are made on account as the chain has excellent credit with all vendors because of a strong payment history. The following information regarding inventory purchases is available.

Inventory Purchases

September $($actual$)$ $ $120,400$

October $($estimated$)112,300$

November $($estimated$)127,600$

December $($estimated$)95,500$

Cash disbursements for inventory are made in the month following purchase using an average cash discount of $3$ percent for timely payment. Monthly cash disbursements for operating expenses during October, November, and December are estimated to be $$38,200,$ $$40,800,$ and $$45,700,$ respectively.