Question

The Frontline Corporation's projected sales for the first 8 months of 2019 are shown in the table below.

Jan	$        190,000	May	$    300,000
Feb	120,000	Jun	270,000
Mar	135,000	Jul	225,000
Apr	240,000	Aug	150,000

Of Frontline's sales, 10% is for cash, 60% is collected in the month following the sales, and 30% is collected in the second month following sales. November and December 2018 sales were $220,000 and $175,000, respectively. Frontline purchases its raw materials 2 months in advance of its sales. The purchases are equal to 60% of the final sales price of Frontline's products. The supplier is paid one month after it makes a delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Frontline pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made every three months beginning in March. The compnay's cash balance on December 31, 2018 was $22,000. This is the minimum balance the company wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. Interest on short-term loans (12% annual interest) is paid monthly. Borrowing to meet estimated monthly cash needs taks place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (12% x 1/12 x $60,500) owed for April and paid at the beginning of May.

Answer 1

CASH BUDGET

Particulars	Jan	Feb	Mar	Apr	May	Jun	Jul
Opening Cash Balance	22,000	110,000	177,500	123,500	54,500	77,000	170,000
Receipts:
Collection from Sales	190,000	178,500	142,500	141,000	214,500	279,000	274,500
Total Receipts (A)	190,000	178,500	142,500	141,000	214,500	279,000	274,500
Payments:
Payment of Raw Materials	72,000	81,000	144,000	180,000	162,000	135,000	90,000
Rent	10,000	10,000	10,000	10,000	10,000	10,000	10,000
Other Expenditures	20,000	20,000	20,000	20,000	20,000	20,000	20,000
Tax Payment	-	-	22,500	-	-	21,000	-
Interest on short term loan	-	-	-	-	-	-	-
Repayment of Loan	-	-	-	-	-	-	-
Total Payments (B)	102,000	111,000	196,500	210,000	192,000	186,000	120,000
Balance (A-B)	110,000	177,500	123,500	54,500	77,000	170,000	324,500
Borrowing taken	-	-	-	-	-	-	-
Closing Cash Balance	110,000	177,500	123,500	54,500	77,000	170,000	324,500
Minimum Amount need to Maintain	22,000	22,000	22,000	22,000	22,000	22,000	22,000

Working Note:

	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun	Jul	August
Sales	$220,000	$175,000	$190,000	$120,000	$135,000	$240,000	$300,000	$270,000	$225,000	$150,000
Collections:
Month of sales 10%			19000	12000	13500	24000	30000	27000	22500	15000
First Month 60%			105000	114000	72000	81000	144000	180000	162000	135000
Second Month 30%			66000	52500	57000	36000	40500	72000	90000	81000
Total Collection			190000	178500	142500	141000	214500	279000	274500	231000
Purchase Of Raw Materials (60% of next to next month sales)	114000	72000	81000	144000	180000	162000	135000	90000	0
Payment of Raw Materials		114000	72000	81000	144000	180000	162000	135000	90000

Note: In this Question no need to take borrowing because at any time cash does goes to below $22,000.

I hope this clear your doubt.

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