CASH BUDGETING
Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2012 and 2013:
May 2012 ................... $186,000
June ............................ 186,000
July ............................. 372,000
August ......................... 540,000
September ................... 720,000
October ........................ 360,000
November ..................... 360,000
December ..................... 90,000
January 2013 ................ 180,000
Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials:
May 2012 ..................... $90,000
June .............................. 90,000
July .............................. 126,000
August .......................... 881,000
September .................... 305,000
October ......................... 234,000
November ..................... 163,000
December ...................... 90,000
General and administrative salaries are approximately $27,000 a month. Lease payments under longterm leases are $9,000 a month. Depreciation charges are $36,000 a month Miscellaneous expenses are $2,700 a month. Income tax payments of $62,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period.
a. Prepare a monthly cash budget for the last 6 months of 2012.
b. Prepare monthly estimates of the required financing or excess funds-that is, the amount of money Bowers will need to borrow or will have available to invest.
July $____________
August $____________
September $____________
October $____________
November $ ____________
December $____________