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Input Data Collections during month of sale 20% Collections during month after sale 60% Collections during second month after sale 20% Lease payments $7,000 Target
Input Data | ||||||||||
Collections during month of sale | 20% | |||||||||
Collections during month after sale | 60% | |||||||||
Collections during second month after sale | 20% | |||||||||
Lease payments | $7,000 | |||||||||
Target cash balance | $30,000 | |||||||||
General and administrative salaries | $25,000 | |||||||||
Depreciation charges | $8,000 | |||||||||
Income tax payments (Sep & Dec) | $30,000 | |||||||||
Miscellaneous expenses | $5,000 | |||||||||
New office suite payment (Oct) | $95,000 | |||||||||
Cash on hand July 1 | $70,000 | |||||||||
Sales, labor, and RM adjustment factor | 0% | |||||||||
a. Prepare a monthly cash budget for the last six months of the year. | ||||||||||
May | June | July | August | September | October | November | December | |||
Original sales estimates | $75,000 | $1,15,000 | $1,45,000 | $1,25,000 | $1,20,000 | $95,000 | $75,000 | $55,000 | ||
Original labor and raw mat. estimates | $80,000 | $75,000 | $1,05,000 | $85,000 | $65,000 | $70,000 | $30,000 | $35,000 | ||
Forecasted Sales | ||||||||||
Sales (gross) | $75,000 | $1,15,000 | $1,45,000 | $1,25,000 | $1,20,000 | $95,000 | $75,000 | $55,000 | ||
Collections | ||||||||||
During month of sale | 1,45,000 *20 = 29,000 | 125000*20 = 25,000 | 120000*20= 24,000 | 95000*20=19,000 | 75000*20= 15,000 | 55000*20=11,000 | ||||
During 1st month after sale | 1,15,000* 60= 69,000 | 145000*60 = 87,000 | 125000*60=75,000 | 120000*60=72,000 | 95000*60= 57,000 | 75000*60=45,000 | ||||
During 2nd month after sale | 75,000 * 20 = 15,000 | 115000*20 = 23,000 | 145000*20= 29,000 | 125000*20=25,000 | 120000*20= 24,000 | 95000*20=19,000 | ||||
Total collections | $1,13,000 | $135,000 | $1,28,000 | $1,16,000 | $96,000 | $75,000 | ||||
Purchases | ||||||||||
Labor and raw materials | $80,000 | $75,000 | $1,05,000 | $85,000 | $65,000 | $70,000 | $30,000 | $35,000 | ||
Payments for labor and raw materials | $75,000 | $1,05,000 | $85,000 | $65,000 | $70,000 | $30,000 | ||||
Payments | ||||||||||
Payments for labor and raw materials | $75,000 | $1,05,000 | $85,000 | $65,000 | $70,000 | $30,000 | ||||
General and administrative salaries | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | ||||
Lease payments | 7,000 | 7,000 | 7,000 | 7,000 | 7,000 | 7,000 | ||||
Miscellaneous expenses | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | ||||
Income tax payments | 30,000 | 30,000 | ||||||||
Design studio payment | 95,000 | |||||||||
Total payments | $1,12,000 | $1,42,000 | $1,52,000 | $1,97,000 | $1,07,000 | $97,000 | ||||
Net Cash Flows | ||||||||||
Cash on hand at start of forecast period | $70,000 | $71,000 | $64,000 | $40,000 | ||||||
Net cash flow (NCF): Total collections - Total payments | $1,000 | ($7,000) | ($24,000) | ($81,000) | ($11,000) | ($22,000) | ||||
Cumulative NCF: Prior month cumulative + this month's NCF | $71,000 | $64,000 | $40,000 | ($41,000) | ($52,000) | ($74,000) | ||||
Cash Surplus (or Loan Requirement) | ||||||||||
Target cash balance | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | ||||
Surplus cash or loan needed: Cum NCF - Target cash | $41000 | $34,000 | $10,000 | ($71,000) | ($82,000) | ($1,04,000) | ||||
Max. Loan | ($1,04,000) |
d. If its customers began to pay late, this would slow down collections and thus increase the required loan amount. Also, if sales dropped off, this would have an effect on the required loan. Do a sensitivity analysis that shows the effects of these two factors on the max loan requirement. Assume the purchases of labor and raw material also vary by the sales adjustment factor. |
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