Problem:
Blaine Inc, is a small company that buys and sells several products. Below is information relating to expected results in 2010.
November 2009 December 2009 January 2010 February 2010 March 2010
Actual Actual Budgeted Budgeted Budgeted
Sales $200,000 $180,000 $210,000 $220,000 $240,000
Material
Purchases $60,000 $70,000 $90,000 $100,000 $110,000
Operating
Expenses $35,000 $45,000 $50,000 $55,000 $60,000
Taxes can be ignored. Sales are all on account and the sales collection pattern is 40% in the month of sale, 50% the month after the sale and 10% the second month after the sale. There are no bad debts. Materials are all on credit and 50% are paid in the month of sale and 50% the following month. Operating expenses include $5,000 of depreciation. Other operating expenses are paid in the month incurred. The company plans to pay cash for $20,000 of equipment in February.
They must maintain a minimum balance of $10,000 in their checking account and, at 1-1-2009, have $11,000. If they run short of funds in a month, an automatic loan in $1,000 multiples is issued at 6%, effective the first day of the month. Interest and principle will be repaid when the total loan can be repaid. Prepare a cash budget for the first quarter of 2010.