Question

James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October?

May

June

July

August

September

October

November

December

January

Collections worksheet:

Billed charges

$180,000

$180,000

$360,000

$540,000

$720,000

$360,000

$360,000

$90,000

$180,000

Collections

Within 30 days

30-60 days

60-90 days

Total collections

Supplies worksheet:
	Amount of labor and supplies			$90,000	$90,000	$126,000	$882,000	$306,000	$234,000	$162,000	$90,000
	Payments made for labor and supplies

Net cash gain (loss):
	Total collections
	Total purchases
	General and administrative salaries
	Lease payments
	Miscellaneous expenses
	Taxes
	Progress payment
	Total payments
	Net cash gain/loss

Borrowing/surplus summary:
	Cash at beginning with no borrowing
	Cash at end with no borrowing
	Target cash balance (given)
	Cumulative surplus cash / loan balance

Answer 1

Net cash gain (loss):			May	June	July	August	September	October	November	December	January
	Total collections		18,000	1,53,000	1,98,000	3,51,000	5,31,000	6,57,000	4,14,000	3,33,000	1,39,500
	Total purchases		-	90,000	90,000	1,26,000	8,82,000	3,06,000	2,34,000	1,62,000	90,000
	General and administrative salaries		27,000	27,000	27,000	27,000	27,000	27,000	27,000	27,000	27,000
	Lease payments		9,000	9,000	9,000	9,000	9,000	9,000	9,000	9,000	9,000
	Miscellaneous expenses		2,700	2,700	2,700	2,700	2,700	2,700	2,700	2,700	2,700
	Taxes						63,000			63,000
	Progress payment							1,80,000
	Total payments		38,700	1,28,700	1,28,700	1,64,700	9,83,700	5,24,700	2,72,700	2,63,700	1,28,700
	Net cash gain/loss		-20,700	24,300	69,300	1,86,300	-4,52,700	1,32,300	1,41,300	69,300	10,800
Borrowing/surplus summary:
	Cash at beginning with no borrowing				1,32,000	2,01,300	3,87,600	2,45,100	2,22,300	3,63,600	4,32,900
	Cash at end with no borrowing				2,01,300	3,87,600	-65,100	3,77,400	3,63,600	4,32,900	4,43,700
	Target cash balance (given)				90,000	90,000	90,000	90,000	90,000	90,000	90,000
	Cumulative surplus cash				1,11,300	2,97,600	-	2,87,400	2,73,600	3,42,900	3,53,700
	Loan balance				-	-	1,55,100	-	-	-	-
	Closing cash balance				2,01,300	3,87,600	2,45,100	2,22,300	3,63,600	4,32,900	4,43,700

Loan is taken in september end for an amount of 155100 and repaid in october.