Part 3

Kayla just launched a business named Kayla's Kayaks. The bank has asked her for a Cash Budget for the first quarter, but she has no idea how to do this. Knowing that you are currently rocking it in your Finance class, Kayla has asked for your help in creating this Cash Budget. She gave you the following information based on actual and forecasted sales.

November Sales: $15,000

December Sales: $20,000

January Sales: $15,000

February Sales: $25,000

March Sales: $30,000

April Sales: $45,000

Kayla's sales are 50% cash and 50% on credit. Of the credit sales, 50% are collected during the month after the sale and the remainder is collected two months after the sale.

Kayla's materials (kayaks and kayak gear) cost 60% of sales. She purchases enough materials each month to cover next month's sales. Her materials are paid for in the month after they are purchased.

Kayla's labor costs are 10% of sales, her overhead costs are $3,000 per month, and her selling and administrative expenses are 7% of sales. These are all paid during the month of the sale.

She will need to pay taxes of $7,000 in January and she needs to make a capital purchase of $15,000 in March.

Her January starting cash balance is $30,000, which is also her desired minimum cash balance. She has a line of credit at the bank and can borrow from it as necessary to meet her minimum cash balance goal. Ignore interest.

Create a first-quarter cash budget for Kayla's Kayaks. This budget should cover January, February, and March. Additionally, please show Kayla how much she will have borrowed as of the end of March due to forecasted cash shortfalls during the first quarter.