University of Phoenix Material
CASH BUDGETING PROBLEM
Kent Resom, a recent University of Phoenix graduate with huge potential, has accepted a position as an entry-level analyst with Builders R Us Manufacturing Company. The president of the company, U. R. Wright, has requested Kent to provide him with a cash flow analysis for the period of April 30 to June 30, which happens to be the end of the current fiscal year. The following information is available:
All sales are credit sales, with 20% of sales collected in the month of sales, 60% collected in the month following sales, 15% collected in the second month following the sale, and the remaining 5% written off as bad debt losses in the sixth month following the sale. Raw materials purchased each month are 75% of the next month’s sales. Payment for raw materials is made during the month after the purchase. The company is required to maintain a minimum balance of $5,000 in the checking account, and the balance on April 1st is $6,000. Rent, insurance, and other expenses are $1,000 per month.
Sales and wage data are as follows:
ACTUAL
|
ESTIMATED
| Sales | Wages | |
| April | $ 30,000 | $ 3,000 |
| May | $ 40,000 | $ 4,000 |
| June | $ 50,000 | $ 5,000 |
| July | $ 60,000 | $ 6,000 |
| August | $ 50,000 | $ 5,000 |
| September | $ 40,000 | $ 4,000 |
Prepare a cash budget for the period April 30 through June 30. For any month during which a cash shortage is indicated, assume that the Friendly Online National Bank will make funds available. Use the budget worksheet provided to solve the problem.
