Cash Budget (In Thousands)
You, the V.P. of Finance for a major corporation, have to prepare a cash budget for the period August through December for the company. Todays date is August 1, 2014. Sales for the relevant months are:
June 125,000
July 140,000
August 160,000
September 110,000
October 95,000
November 114,000
December 76,000
January 90,000
These sales are collected 30% in the month of sale, 60% in the following month, and the last 10% 2 months following the sale. Purchases of inventory for the sales amount to 65% of the respective months sales, but the purchase is made one month in advance of sales, and are paid for 40% in the month of purchase, and 60% the following month.
Other monthly expenses are: Wages 15,000(with a 10% increase in the month of November and following) Rent 13,000, and utilities 12,000. You need to make a tax deposit into your special tax account at your banke for 35,000 in October. Your operations supervisor has told you that a new machine must be bought in September for 60,000, and you also know that the Board Of Directors has decreed that a dividend has to be paid in October for $25,000. You decide to sell some land that you no longer need in November for 10,000.
You yourself have made a policy of keeping a minimum balance of 30,000 on hand at all times for your company. But, to take care of low cash inflow you have set up a Line Of Credit with your bank for the next year. The interest rate the bank is charging is Prime plus 5%. The beginning balance you have as of August 1st is 30,000. For your cash budget you will set up your figures in 1 decimal place, except for the "Accrued Interest" line and the "Pay Interest" line, which will both be in 2 decimals. Your "Final Cash" figure, however, will be rounded to even thousands.
A major assumption you make is tht if borrowings are need your Line Of Credit, you will borrow at the beginning of the month, but repay interest of principle at the end of a particular month.