The following budget assumptions were used to construct the budget: Hansborough's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Hansborough's sales are made on credit with terms of 2/10, net 30. Hansborough's experience is that 15% is collected from customers who take advantage of the discount, 75% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 50% of Hansborough's finished product. The purchases are generally made one month in advance of the sale, and Hansborough pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $660 ($1,320 million x 0.50), and this amount would be paid in July. Other cash expenses include wages and salaries at 16% of sales, monthly rent of $48 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 million payment for a new plant must be made in September Assume that Hansborough's targeted cash balance is $300, and the estimated cash on hand on July 1 is $267 Use the preceding information to fill in the missing amounts in the following cash budget Hansborough Company Cash Budget For the Six Months Ended December 31, Year 1 ($ millions) ber December August September October Novem June $1,236 630 Credit sales $1,140 $1,212 $1,260 $1,296 $1,320 $1,176 $1,200 Credit purchases 600 618 648 660 October November December August September Cash receipts Collections from this month's sales Collections from previous month's sales Collections from sales two months previously 182 909 120 $1,211 178 185 927 121 $1,233 191 900 124 126 Total cash receipts Cash disbursements Payments for credit purchases Wages and salaries Rent Other expenses $1,196 $1,260 $1,292 600 606 648 660 192 194 198 207 60 Payment for plant construction 1,200 Total cash disbursements Net cash low (Receipts - disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash $970 $909 $2,126 $968 $985 $307 350 $657 300 $357 $202 267 $469 300 $169 $287 S217 -159 $58 300 -$242 $292 469 756 $756 $350 $456 Use the information provided in the budget to complete the following sentences Hansborough Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Hansborough will to end the year with a cash and a cash Hansborough Company will want a credit line of at least to cover the month with the greatest shortfall, and the financial managers in short-term marketable securities. can tell the bank to expect that they will be able to invest up to $
