Problem: Medical Supplies, Inc., purchases first-aid items from large wholesalers. Medical Supplies then assembles and sells first-aid kits to businesses and contracts to maintain the first-aid kits. You have been asked to prepare a cash budget for January. The following information is provided:
1. Cash in the bank on January 1 is $33,000.
2. Actual sales for October, November, December, and projected sales for January are as follows:
October November December January
Cash . . . . . . . . . . . . . . . . . . . . . $12,000 $11,500 $ 8,200 $12,500
Credit . . . . . . . . . . . . . . . . . . . . 31,000 29,400 32,000 28,000
Payments on credit sales are received 50% in the month of sale, 31% in the month following the sale, and 15% and 4% in the second and third months, respectively, following the sale.
3. Total administrative and selling expenses (all cash) are $25,000.
4. Purchases are always paid 30 days after delivery. Purchases for October, November, and December were $28,000, $39,000, and $29,500, respectively.
5. Cash dividends of $22,000 are paid.
6. Any cash excess is used to purchase 30-day government securities, and any cash deficiency is compensated by short-term borrowing.
7. Management desires a minimum balance of $9,000 in the bank. Prepare a cash budget for the month of January.