Question

Lamia's House of Software (LHS) wants to prepare a cash budget for months of September through December. Using the following information,

∙ Sales were $50,000 in June and $60,000 in July. Sales have been forecasted to be $65,000, $72,000, $63,000, $59,000, and $56,000 for months of August, September, October, November, and December, respectively. In the past, 10 percent of sales were on cash basis, and the collection were 50 percent in the first month, 30 percent in the second month, and 10 percent in the third month following the sales.

∙ Every four months (three times a year) $500 of dividends from investments are expected. The first dividend payment was received in January.

∙ Purchases are 60 percent of sales, 15 percent of which are paid in cash, 65 percent are paid one month later, and the rest is paid two months after purchase.

∙ $8,000 dividends are paid twice a year (in March and September).

∙ The monthly rent is $2,000.

∙ Taxes are $6,500 payable in December.

∙ A new machine will be purchased in October for $2,300.

∙ $1,500 interest will be paid in November.

∙ $1,000 loan payments are paid every month.

∙ Wages and salaries are $1,000 plus 5 percent of sales in each month.

∙ August's ending cash balance is $3,000.

∙ LHS would like to maintain a minimum cash balance of $10,000.

December Cash

October Cash.

September cash

November Cash

Answer 1

The cash budget is given as below:

The company has excess cash in all the months. Therefore, the company doesn't need additional financing.

____

Notes:

The calculations are given as below:

Cash Collections (Sales):

Month	June	July	August	September	October	November	December
Sales	50,000	60,000	65,000	72,000	63,000	59,000	56,000
Cash Sales (10% of Sales)	5,000	6,000	6,500	7,200	6,300	5,900	5,600
Collection of Accounts Receivable
1st Month (50%)		25,000 (50,000*50%)	30,000 (60,000*50%)	32,500 (65,000*50%)	36,000 (72,000*50%)	31,500 (63,000*50%)	29,500 (59,000*50%)
Second Month (30%)			15,000 (50,000*30%)	18,000 (60,000*30%)	19,500 (65,000*30%)	21,600 (72,000*30%)	18,900 (63,000*30%)
Third Month (10%)				5,000 (50,000*10%)	6,000 (60,000*10%)	6,500 (65,000*10%)	7,200 (72,000*10%)

____

Cash Payments (Purchases):

Month	June	July	August	September	October	November	December
Purchases	30,000 (50,000*60%)	36,000 (60,000*60%)	39,000 (65,000*60%)	43,200 (72,000*60%)	37,800 (63,000*60%)	35,400 (59,000*60%)	33,600 (56,000*60%)
Cash Purchases (15%)	4,500	5,400	5,850	6,480	5,670	5,310	5,040
Payment of Accounts Payable
1st Month (65%)		19,500 (30,000*65%)	23,400 (36,000*65%)	25,350 (39,000*65%)	28,080 (43,200*65%)	24,570 (37,800*65%)	23,010 (35,400*65%)
Second Month (20%)			6,000 (30,000*20%)	7,200 (36,000*20%)	7,800 (39,000*20%)	8,640 (43,200*20%)	7,560 (37,800*20%)