15-10 CASH BUDGETING Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2016 and 2017.
May 2016 $180,000
June 180,000
July 360,000
August 540,000
September 720,000
October 360,000
November 360,000
December 90,000
January 2017 180,000
Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials:
May 2016 $90,000
June 90,000
July 126,000
August 882,000
September 306,000
October 234,000
November 162,000
December 90,000
General and administrative salaries are approximately $27,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a month. Miscellaneous expenses are $2,700 a month. Income tax payments of $63,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October.
Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period.
a. Prepare a monthly cash budget for the last 6 months of 2016.
b. Prepare monthly estimates of the required financing or excess funds-that is, the amount of money Bowers will need to borrow or will have available to invest.