Question

Cummings Inc., has been accumulating operating data in order to prepare an annual budget.  They have determined that a minimum cash balance of $150,000 is required. Any required borrowings take place in increments of $1,000 with annual interest of 8%.  Repayment of borrowed funds is also made in increments of $1,000. Assume that borrowings are made on the first day of the month in which the cash is required, and the repayments are made on the last day of a month in which cash is available.  On March 1, the cash balance will be $320,000.   

Details regarding sales for the first six months of the year are as follows:   

January $1,200,000

February 1,300,000

March 1,400,000

April 1,250,000

May 1,440,000

June 1,600,000

Twenty percent (20%) of the above sales are cash sales and 80% are credit sales. Accounts receivable collection experience is 30% the month of the sale, 40% the month following and 25% the second month following the sale. The remaining receivables are deemed uncollectable for planning purposes.

Budgeted inventory purchases are as follows:  

January $480,000

February   520,000

March 560,000

April 500,000

Cummings Inc. pays 50% of their inventory purchases the month of the purchase and 50% the following month.

Budgeted expenses for March and April are as follows:

	March	April
Advertising	72,000	60,000
Payroll	648,000	518,400
Depreciation	110,000	110,000
Insurance	120,000
Property taxes	80,000

A new truck was required to replace their aging truck.  The new truck costing $40,000 was received in March and paid for in cash.  They were successful in finding a buyer for their old truck in April and received $15,000 cash.

REQUIRED:

Prepare a cash budget for Cummings Inc. for the months of March and April.   Include the calculations that you used to arrive at your entry.   

Answer 1