The firm expects to collect 10 percent of sales in cash, 60 percent in one month, and 25 percent in two months with 5 percent in uncollectible bad debts. Sales for the previous November and December were $55,000 and $80,000, respectively.
The firm buys raw materials 30 days prior to expected sales; that is, the materials for January are bought by the beginning of December with payment made by the end of December. Materials cost are 58 percent of sales.
Wages for the months of January, February, and March are expected to be $6,000 per month. Other monthly expenses amount to $5,000 a month and are paid in the second month of the succeeding quarter. The taxes due for the prior quarter were $9,000.
The firm plans to buy a new car in January for $18,000. An old vehicle will be sold for a net amount of $2,000. A note of $10,000 will be due for payment in February. A quarterly loan installment payment of $7,500 is due in March.
The beginning cash balance in January is $8,000. The company policy is to maintain a minimum cash balance of $5,000. It has an outstanding loan balance of $10,000 in December. Should the firm need to borrow to meet expected monthly shortfalls, the interest cost is 1.5 percent per month and is paid each month on the total amount of borrowed funds outstanding at the end of the previous month. Prepare a monthly cash budget for January, February, and March using the given details.