Lipman Auto Parts, a family-owned auto parts store, began January with $10,300 cash. Management forecasts that collections from credit customers will be $11,400 in January and $14,800 in February. The store is scheduled to receive $5,000 cash on a business note receivable in January. Projected cash payments include materials purchases ($3,000 in January and $3,600 in February), direct labor ($7,000 monthly) and manufacturing overhead ($2,500 in January and $2,800 in February). Selling and administrative expenses are ($2,700 each month). Lipman Auto Parts' bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Lipman Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% annual interest on the entire unpaid principal. The
first loan payment occurs three months after the initial loan.
Requirement
1. Prepare Lipman Auto Parts' cash budget for January and February.
2. "How much cash will Lipman Auto Parts borrow, if any, in February if collections
from customers that month total $13,800 instead of $14,800?" Lipman Auto Parts, a family-owned auto parts store, began January with $10,300
cash. Management forecasts that collections from credit customers will be $11,400 in January and $14,800 in February. The store is scheduled to receive $5,000 cash on a business note receivable in January. Projected cash payments include materials purchases ($3,000 in January and $3,600 in February), direct labor ($7,000 monthly) and manufacturing overhead ($2,500 in January and $2,800 in February). Selling and administrative expenses are ($2,700 each month). Lipman Auto Parts' bank requires a $10,000 minimum balance in the store's checking account. At the end of any month when the account balance dips below $10,000, the bank automatically extends credit to the store in multiples of $1,000. Lipman Auto Parts borrows as little as possible and pays back loans in quarterly installments of $2,000, plus 4% annual interest on the entire unpaid principal. The first loan payment occurs three months after the initial loan.
Requirement
1. Prepare Lipman Auto Parts' cash budget for January and February.
2. "How much cash will Lipman Auto Parts borrow, if any, in February if collections
from customers that month total $13,800 instead of $14,800?"