December of the previous year : 10,000

January : 70,000

February : 30,000

March : 50,000

April : 20,000

Prepare a cash budget for January through March and for the first quarter in total. The company maintains a minimum cash balance of $80,000.00, and this was the ending cash balance in the cash account on December 31.

Additional Data:

• Past experience shows that 40% of sales are collected in the month of the sale, and 60% in the month following the sale.
• Selling cost is $12 per unit sold.
• Other expenses include $35,000 per month for rent, $104,000 for advertising, and $76,000 per month for depreciation.
• All costs are paid in the current month except inventory purchases, which are paid in the month following the purchase (i.e. January purchases of inventory are paid in February).
• The company has an open line of credit with a bank and can borrow at an annual rate of 12%. For simplification assume that all loans are made at the beginning of the month when a borrowing need is identified and repayments are made at the end of a month when the company has excess cash(i.e. this company does not take out additional loans to pay current loans.)
• Also, interest associated with a loan is only paid at the time when that loan is paid (i.e. a loan is only paid if there is enough cash to pay off the whole loan, any interest associated with it, and the company still has enough cash left over to meet its requirement for the minimum cash balance.)

Sales Budget:

	January	February	March	Quarter
Number of units sold	70,000	30,000	50,000	150,000
Selling price per unit	$45	$45	$45	$45
Sales	$3,150,000	$1,350,000	$2,250,000	$6,750,000

Purchase Budget:

Purchase Budget
For the quarter ended March 31
Particulars	January	February	March	Total
Number of Units sold	70000	30000	50000	150000
Add: Desired Ending inventory @ 50% of next month sale	15000	25000	10000	50000
Total Units needed	85000	55000	60000	200000
Less: Beginning Inventory	10000	15000	25000	50000
Units to be purchased	75000	40000	35000	150000
Purchase Price @ $35 per units	$2625000	$1400000	$1225000	$5250000