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.
