Problem: Prepare a cash budget for Elmwood Manufacturing Company for the first three months of 2007 based on the following information.
| Month |
Estimated Sales |
Estimated Factory Overhead |
Estimated Selling and Admin Expenses |
|
|
|
|
| December |
$4,600,000.00 |
$640,000.00 |
$1,250,000.00 |
| January |
6,400,000.00 |
650,000.00 |
1,275,000.00 |
| February |
11,200,000.00 |
670,000.00 |
1,285,000.00 |
| March |
8,400,000.00 |
670,000.00 |
1,310,000.00 |
| April |
7,000,000.00 |
680,000.00 |
1,300,000.00 |
The company has found that approximately 40% of sales are collected during the month the sale is made and the remaining 60% are collected during the month following the sale. Material purchases are 30% of next month's estimated sales, and payments lag these purchases by one month. Labor costs are 35% of next month's sales and are paid during the month uncurred. Factory overhead and selling and administrative expenses are paid during the month incurred. In addition, a payment for new equipment of $1.5 million is due in February. Also, a tax payment of $1.6 million and a dividend payment of $650,000 are due in March.
The company's projected cash balance at the beginning of January is $1.5 million. Furthermore, Elmwood desires to maintain a $750,000 cash balance at the end of each month.