EXAMPLE PROBLEM

CASH BUDGET

You are given the following information for the Boodro Company:

Actual Sales $3$rd OTR

Estimated Sales $4$th QTR

July $$500,000$

Oct. $$2,000,000$

Aug. $$700,000$

Sept. $$900,000$

Nov. $$4,000,000$

Actual Purchases $3$rd QTR

Dec. $$6,000,000$

Actual Purchases $3$rd QTR

Estimated Purchases $4$th QTR

July $$300,000$

Oct. $$2,500,000$

Aug. $$400,000$

Nov. $$4,500,000$

Sept. $$700,000$

Dec. $$1,500,000$

One$-$half of the sales each month are for cash and one half are on credit. One half of the credit sales are collected in the month following the sale and the other one half is collected two months following the sale.

Costs of Goods Sold $($CGS$)$ are equal to $70\%$ of sales. NOT A castl flow

Boodro pays cash for $75\%$ of its purchases and pays the other $25\%$ the month following the purchase. AlP

Other monthly cash expenses are estimated at $$30,000($rent$),$ $$25,000($salaries$)$ and $$10,000($interest$).$

Depreciation, which is the only non$-$cash expense, will be $$40,000$ per month.

No change is expected in the $50\%$ income tax rate. Income tax expense for October through December $(4$th QTR$)$ will be paid in December.

Preferred Dividends of $$50,000$ will be paid in October.

Equipment totaling $$500,000$ will be purchased for cash in November.

In November, the firm will sell equipment for its book value $($no tax consequence$)$ of $$250,000.$ The money will be collected in December.

The Company intends to float a $$5,000,000($raise capital by issuing new stock$)$ preferred stock issue in October. There will be $10\%$ investment banker fee, which will be paid in October $($disregard for the income statement$).$ The money for the preferred stock issue will be received in December.

The cash balance is $$200,000$ on October $1,$ and a minimum balance of $$200,000$ is desired.