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14-14.(Preparation of a cash budget) Lewis Printing has projected its sales for the first 8 months of 2019 as shown in the table below.

January	$100,000	April	$300,000	July	$200,000
February	120,000	May	275,000	August	180,000
March	150,000	June	200,000

Lewis collects 20 percent of its sales in the month of the sale, 50 percent in the month following the sale, and the remaining 30 percent 2 months following the sale. During November and December of 2018, Lewiss sales were $220,000 and $175,000, respectively.

Lewis purchases raw materials 2 months in advance of its sales. These purchases are equal to 65 percent of its final sales. The supplier is paid 1 month after delivery. Thus, purchases for April sales are made in February and payment is made in March.

In addition, rent expense is $10,000 per month and other expenses total $20,000 a month. Beginning in March quarterly tax prepayments of $22,500 are made. The companys cash balance as of December 31, 2018, was $28,000; a minimum balance of $25,000 must be maintained at all times to satisfy the firms bank line of credit agreement. Lewis has arranged with its bank for short-term credit at an interest rate of 12 percent per annum (1 percent per month) to be paid monthly. Borrowing to meet estimated monthly cash needs takes place at the end of the month, and interest is not paid until the end of the following month. Consequently, if the firm needed to borrow $50,000 during April, then it would pay $500 (=0.01$50,000) in interest during May. Finally, Lewis follows a policy of repaying its outstanding short-term debt in any month in which its cash balance exceeds the minimum desired balance of $25,000.

1. Lewis needs to know what its cash requirements will be for the next 6 months so that he can renegotiate the terms of his short-term credit agreement with his bank, if necessary. To address this problem, prepare a 6-month cash budget. Also recalculate the budget for a plus or minus 20 percent variation in its monthly sales.

2. Lewis has a $20,000 note due at the end of June. Will the firm have sufficient cash to repay the loan?

5 PROBLEM 14-14 6 PREPARATION OF A CASH BUDGET 7 8 DATA 9 Minimum Cash Balance = 25,000 10 Beginning Cash Balance = 28,000 11 12 Historical Sales and Base Case Sales Predictions for Future Sales 13 January 100,000 May 275,000 14 February 120,000 June 200,000 15 March 150,000 July 200,000 16 April 300,000 August 180,000 17 18 Purchases as a % Sales = 65% Annual Interest 19 Rate = 20 Collections: Current Mo. 1 Mo. Later 2 Mo. Later 21 50% 30% 22 23 Cash Budget for January thru June 24 Nov Jan Feb 25 220,000 175.000 100,000 120,000 12.00% 20% Dec Mar 150.000 Apr 300,000 May 275,000 June 200,000 July 200,000 August 180,000 Feb June Dec 175,000 Jan 100,000 Mar 150,000 Apr 300,000 May 275,000 July 200,000 August 180.000 120,000 200,000 0 0 0 0 0 0 78,000 65,000 22 23 Cash Budget for January thru June 24 Nov 25 220.000 26 Collections: 27 Month of sales 28 First month 29 Second month 30 Total collections 31 Purchases 65,000 32 Payments 33 34 Cash Receipts 35 (collections) 36 37 Cash Disbursements 38 Payments for Purchases 39 Rent 40 Other expenditures 41 Tax Deposits 42 Interest on S-T 43 borrowing 44 Total Disbursements 0 0 0 0 0 0 10,000 20,000 10,000 20,000 10,000 20,000 22.500 10,000 20,000 10,000 20,000 10,000 20,000 22,500 45 46 Net Monthly Change 47 48 Analysis of Borrowing Needs 49 Beginning Cash Balance 50 Ending Cash (No Borrowing) 51 Needed(Borrowing) 52 Loan Repayment 53 Ending Cash Balance 54 Cumulative Borrowing 55