Problem 1

A local business has the following forecasted sales for the third quarter of the year:

July $120,000

August $90,000

September $135,000

• June sales were $105,000. Most sales are made on credit.
• Experience has shown that 20% of sales are either cash or are credit sales that are collected during the month of the sale.
• 77.5% of sales are collected in the month following the sale, and 2.5% are never collected.
• Monthly material purchases are 68% of forecasted sales for the next month and are paid for two months after the purchase.
• Labor costs will run $10,000 per month for July and August and will run $12,000 for September. Overhead costs will be $3,500 per month.
• Interest payments on debt will be $7,000 per month and $11,500 in taxes will have to be paid in September. October sales are forecasted to be $160,000.

1. Prepare a monthly summary of cash receipts and cash payments for the third quarter.

2. Calculate the cash surplus or loan requirement for the third quarter if the firm is required to have at least $10,000 in cash at the end of each month and the firm has $14,000 in cash at the end of June.