Question:
Dan Barnes, financial manager of SKI casts, is requesting a line of credit from the company's bank. The company has produced the subsequent sales estimates: $71,218 in November, $68,212 in December,
$65,213 in January, $52,475 in February, $42,909 in March, $30,524 in April, $44,567 in May,
$54,590 in June, $62,341 in July, and $70,132 in August. Collection estimates are as follows: 20 percent within the month of sale, 70 percent in the month subsequent the sale, and 10 percent in the second month subsequent the sale. The company allows a 2 percent discount on payments made during the month of sales. Plaster supplies expense is evaluated as 85 percent of sales two months from now. Other relevant information is as follows:
- Payments for plaster supplies is made during the month subsequent the one in which these costs have been incurred.
- Wages and salaries will amount to just about $6,691 in January, $5,471 in February, $4,316 in March, $3,126 in April, $4,511 in May, and $5,629 in June.
- Lease payments under long-term lease contracts can be $2,500 a month.
- Depreciation charges will be $600 a month.
- Income tax payments of $8,000 can be due in March and June;
- A progress payment of $10,000 on a new building must be paid in April.
- Cash on hand on January 1 can amount to $3,000, and a minimum cash balance of $1,500 will be maintained throughout the cash budget period.
a. What is the maximum loan that the company will need between January and June?