Question

Alpha-Tech, a rapidly growing distributor of electronic components, is formulating its plans for 20x5. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

ALPHA-TECH
20x5 Forecasted Sales
(in thousands)
Month		Sales
January		$	8,000
February			9,000
March			8,000
April			10,500
May			11,500
June			13,000
July			14,000
August			14,000
September			15,000
October			15,000
November			14,000
December			16,000

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. The following information will be used in preparing the cash flow projection.

Alpha-Tech’s excellent record in accounts receivable collection is expected to continue. Sixty percent of billings are collected the month after the sale, and the remaining 40 percent two months after.

The purchase of electronic components is Alpha-Tech’s largest expenditure, and each month’s cost of goods sold is estimated to be 30 percent of sales. Seventy percent of the parts are received by Alpha-Tech one month prior to sale, and 30 percent are received during the month of sale.

Historically, 80 percent of accounts payable has been paid one month after receipt of the purchased components, and the remaining 20 percent has been paid two months after receipt.

Hourly wages and fringe benefits, estimated to be 30 percent of the current month’s sales, are paid in the month incurred.

General and administrative expenses are projected to be $16,520,000 for the year. The breakdown of these expenses is presented in the following schedule. All cash expenditures are paid uniformly throughout the year, except the property taxes, which are paid in four equal installments at the end of each quarter.

20x5 Forecasted General and Administrative Costs
(in thousands)
Salaries and fringe benefits	$	3,100
Promotion		4,300
Property taxes		1,450
Insurance		1,710
Utilities		1,600
Depreciation		4,360
Total	$	16,520

Income-tax payments are made at the beginning of each calendar quarter based on the income of the prior quarter. Alpha-Tech is subject to an income-tax rate of 40 percent. Alpha-Tech’s operating income for the first quarter of 20x5 is projected to be $4,700,000. The company pays 100 percent of the estimated tax payment.

Alpha-Tech maintains a minimum cash balance of $585,000. If the cash balance is less than $585,000 at the end of each month, the company borrows amounts necessary to maintain this balance. All amounts borrowed are repaid out of the subsequent positive cash flow. The projected April 1, 20x5, opening balance is $585,000.

Alpha-Tech has no short-term debt as of April 1, 20x5.

Alpha-Tech uses a calendar year for both financial reporting and tax purposes.

Required:

Prepare a cash budget for Alpha-Tech by month for the second quarter of 20x5. For simplicity, ignore any interest expense associated with borrowing. (Negative amounts should be indicated by a minus sign.)

Required:

Prepare a cash budget for Alpha-Tech by month for the second quarter of 20x5. For simplicity, ignore any interest expense associated with borrowing. (Negative amounts should be indicated by a minus sign.)

	ALPHA-TECH Cash Budget For the Second Quarter of 20x5 April May June Beginning balance Collections: February sales March sales April sales May sales Total receipts Total cash available Disbursements: Accounts payable Wages General and administrative Property taxes Income taxes Total disbursements Cash balance Cash borrowed Cash repaid Ending balance

Answer 1

Cash Budget
For the Secong Quarter of 2015
	April	May	June
Beginning Balance	$     585,000	$        585,000	$    2,109,000
Collections:(1)
February Sales	$ 3,600,000
March Sales	$ 4,800,000	$    3,200,000
April Sales		$    6,300,000	$    4,200,000
May Sales			$    6,900,000
Total Receipts	$ 8,400,000	$    9,500,000	$ 11,100,000
Total Cash Available	$ 8,985,000	$ 10,085,000	$ 13,209,000
Disbursements:
Accounts Payable	$ 2,838,000	$    3,273,000	$    3,684,000
Wages(2)	$ 3,150,000	$    3,450,000	$    3,900,000
General and Administrative(3)	$     892,500	$        892,500	$        892,500
Property Tax			$        362,500
Income Tax(4)	$ 1,880,000
Total disbursements	$ 8,760,500	$    7,615,500	$    8,839,000
Cash Balance	$     224,500	$    2,469,500	$    4,370,000
Cash Borrowed	$     360,500
Cash Repaid		$     (360,500)
Ending Balance	$     585,000	$    2,109,000	$    4,370,000

1. 60% of sales in first month; 40% of sales in second month
2. 30% of current month sales
3. (Total less property taxes and depreciation) / 12

4.40% x $3,200,000

COST OF GOODS SOLD
Month	30% of Sales	Timing	February	March	April	May	June
February	$ 2,700,000	30%	$     810,000
March	$ 2,400,000	70%	$ 1,680,000
March	$ 2,400,000	30%		$     720,000
April	$ 3,150,000	70%		$ 2,205,000
April	$ 3,150,000	30%			$     945,000
May	$ 3,450,000	70%			$ 2,415,000
May	$ 3,450,000	30%				$ 1,035,000
June	$ 3,900,000	70%				$ 2,730,000
			$ 2,490,000	$ 2,925,000	$ 3,360,000	$ 3,765,000	$                 -
PAYMENTS
February	$ 2,490,000	20%			$     498,000
March	$ 2,925,000	80%			$ 2,340,000
March	$ 2,925,000	20%				$     585,000
April	$ 3,360,000	80%				$ 2,688,000
April	$ 3,360,000	20%					$     672,000
May	$ 3,765,000	80%					$ 3,012,000
					$ 2,838,000	$ 3,273,000	$ 3,684,000