Question

4. Prepare a cash budget for Atlas Products, Inc. for the first quarter of 2011 based on the following information. (20 points)

                                                              Total Sales                             Credit Sales

December 2010                                     $825,000                                   $770,000

January 2011                                           730,000                                     690,000

February 2011                                         840,000                                     780,000

March 2011                                             920,000                                     855,000

The company found that on average, about 25% of its credit sales are collected during the month when the sale is made, and the remaining 75% of the credit sales are collected during the month following the sale.

The company estimates its purchases at 60% of the next month’s sales and payments for those purchases are budgeted to lag the purchases by 1 month.

Other disbursements have been estimated as follows:

                                                            January                 February            March

Wages and salaries                              $250,000             $290,000            $290,000

Rent                                                         27,000                 27,000                27,000

Other expenses                                        10,000                12,000                14,000

In addition, a tax payment of $105,000 is due in January, and a $40,000 dividend will be declared in January and paid in March. Also, the company has ordered a $75,000 piece of equipment. Delivery is scheduled for January and payment will be made in February.

The company’s projected cash balance at the end of December is $100,000 and they desire to maintain a balance of $100,000 at the end of each month.

Answer 1

	Cash budget for Jan , Feb and March
	Parctiluars		January		February		March
	I. Opening Cash balance		$ 100000		$ 100000		$ 100000
	II. Add : Receipts		$ 790000		$ 772500		$ 863750
	(note given above)
	III. Less : Cash Payments
	Purchases (note given above)		$ 438000		$ 504000		$ 552000
	Wages nd Salary		$ 250000		$ 290000		$ 290000
	Rent		$ 27000		$27000		$27000
	Other Expenses		$ 10000		$ 12000		$ 14000
	Tax Payment		$ 105000		$0		$0
	Dividend Paid		$0		$0		$ 40000
	Purchase of Equipment		$0		$75000		$0
	Total cash disbursement		$ 830000		$ 908000		$ 923000
	IV. Excess or deficiency (I+II-III)		$ 60000		($ 35500)		$ 40750
	V. Borrowings		$ 40000		$ 135500		$ 59250
	VI. Repayments		$0		$0		$0
	VII. Closing Balance (IV+V-VI)		$ 100000		$ 100000		$ 100000
	VII. Cumulative Cash Balance of loan		$ 40000		$ 175500		$ 234750
	Note - asuumed that Loan obtained from bank if there is any deficient