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 Administrative Expenses
|
|
December
|
$ 4,600,000
|
$ 640,000
|
$ 1,250,000
|
|
January
|
6,400,000
|
650,000
|
1,275,000
|
|
February
|
11,200,000
|
670,000
|
1,285,000
|
|
March
|
8,400,000
|
670,000
|
1,310,000
|
|
April
|
7,000,000
|
680,000
|
1,300,000
|
The company has found that approximately 40 percent of sales are collected during the month the sale is made and the remaining 60 percent are collected during the month following the sale. Material purchases are 30 percent of next month's estimated sales, and payments lag these purchases by one month. Labor costs are 35 percent of next month's sales and are paid during the month incurred. 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.