The Sharpe Corporation's projected sales for the first 8 months of 2014:
January $90,400
February $119,600
March $134,100
April $240,800
May $300,700
June $269,300
July $225,000
August $150,300
Of Sharpe's sales, 10 percent is for cash, another 60 percent is collected in the month following the sales, and 30 percent is collected in the second month following sales. November and December sales for 2013 were $220,200 and $175,300 respectively.
Sharpe purchases its raw materials 2 months in advance of its sales. The purchases are equal to 60 percent of the final sales price of Sharpe's products. The supplier is paid 1 month after it makes a delivery. For example, purchases for April sales are made in February, and payment is made in March.
In addition, Sharpe pays $11,000 per month for rent and $19,200 each month for other expendatures. Tax prepayments of $21,600 are made each quarter, beginning in March.
The company's cash balance on December 31, 2013, was $22,600. A minimum balance of $15,00 must be maintained at all times. Any borrowing that is needed to maintain this minimum is paid off in the subsequenr month if there us sufficient cash. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additonal $60,140, these funds would be borrowed at the beginning of April with interest of $601 (.12*1/12*$60,140) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first 7 months of 2014.
b. Sharpe has $ 199,700 in notes payable due in Jult that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?