Question

The Alex Thomsen Company is planning to request a line of credit from its bank. The following sales forecasts have been made for parts of 2017 and 2018:

May 2017	$150,000
June	150,000
July	300,000
August	450,000
September	600,000
October	300,000
November	300,000
December	75,000
January 2018	150,000

Collection estimates obtained from the credit and collection department are as follows: collected within the month of sale, 5 percent; collected the month following the sale, 80 percent; collected the second month following the sale, 15 percent. Payments for labor and raw materials are typically made during the month following the month in which these costs are incurred. Total labor and raw materials costs are estimated for each month as follows:

May 2017	$75,000
June	75,000
July	105,000
August	735,000
September	255,000
October	195,000
November	135,000
December	75,000

General and administrative salaries will amount to approximately $22,500 a month; lease payments under long-term lease contracts will be $7,500 a month; depreciation charges will be $30,000 a month; miscellaneous expenses will be $2,250 a month; income tax payments of $52,500 will be due in both September and December; and a progress payment of $150,000 on a new research laboratory must be paid in October. Cash on hand on July 1 will amount to $110,000 and a minimum cash balance of $75,000 will be maintained through-out the cash budget period.

A. Prepare a cash budget for the last six months of 2017 with an estimate of required financing (or excess funds).

Answer 1