Task: Cash Budget
The Hale Company is currently working on its cash budget for the coming year. The following information is available:
Projected sales for the coming year:
Month Projected Sales
January $850,000
February 750,000
March 730,000
April 850,000
May 830,000
June 750,000
July 900,000
The collection history of the Hale Company has been as follows:
> 20% of sales are collected in the month of the sale.
> 60% of the sales are collected in the month following the sale.
> 12% of the sales are collected in the 2nd month following the sale.
> 5% of the sales are collected in the 3rd month following the sale.
The following information regarding costs is available:
> The cost of goods sold is 54% of sales
> Items for sale are purchased in the month of the sale.
> 80% of accounts payable are paid in the month following when the cost is incurred.
> 20% of accounts payable are paid in the 2nd month following when the cost is incurred.
> Wages are 28% of sales and are paid currently
> Annual general and administrative costs are $1,411,200 and are incurred evenly throughout the year.
> Annual property taxes are $14,000 and are paid semiannually in June and October.
> A $10,000 cash capital purchase will be made in April.
The beginning cash balance in April is expected to be $47,000. The Hale Company has a policy of maintaining a minimum cash balance of $45,000. The company has an arrangement with a local bank for a line of credit that carries a 10% annual interest rate. If the ending monthly balance falls below $45,000, the company will borrow against the line of credit so that the minimum balance can be maintained. If the company has borrowed against the line of credit and a cash balance is expected to be above $45,000 at the end of a particular month, then repayments will be made bringing the cash balance down to $45,000. Interest on the line of credit is paid monthly. Assume that all line of credit transactions occur on the last day of the month.
Required:
Prepare a cash budget for the Hale Company for the 2nd quarter of the year. Include April, May, June, and a quarter total in your budget.