Question

XYZ Corporation is preparing a cash budget for January of the coming year. The following data have been forecasted:
January February
Sales 750,000 800000
Purchases 450,000 480000
Operating expenses:
Payroll 146,800 167400
Advertising 52,700 62800
Rent 8,750 8750
Depreciation 23,750 23,750
End-of-December balances:
Cash 120,000
Accounts payable 200,000
Bank loan 480,000
Additional data:
Sales are 40% cash. The term of credit sales is 2/10, n/30. The collection pattern for credit sales is 75% in the month following the month of sale (of which 80% are collected within 10 days), and 23% are collected in the month thereafter. The remaining credit sales are considered as uncollectible.
The accounts receivable balance on January 1 is $1,000,000, of which $800,000 represents uncollected December sales and $200,000 represents uncollected November sales.
Purchases are all on credit, with 40% paid in the month of purchase and the balance the following month. Operating expenses are paid in the month incurred.
Starting from January, the firm desires to maintain a minimum cash balance of $150,000 at the end of each month. 6% APR loans are used to maintain the minimum cash balance. At the end of each month, monthly interest is paid on the outstanding loan balance as of the beginning of the month. Repayments are made (at the end of the month) whenever the cash balance exceeds $150,000.

Required:
What is amount of cash inflow from operations in January?
What is amount of cash outflow from operations in January?
What is amount of loan balance at the end of January after loan repayments, if any?

Answer 1

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XYZ Corporation
Answer 1
Cash inflow from operations in January	Amount $	Note
Cash sales of January	300,000.00	A= $ 750,000*40%
Collected of December sales	600,000.00	B= $ 800,000*75%
Collected of November sales	184,000.00	C= $ 200,000/25%*23%
Cash inflow from operations in January	1,084,000.00	D=A+B+C
Answer 2
Cash outflow from operations in January	Amount $	Note
40% of January purchases	180,000.00	E= $450,000*40%
Accounts payable paid	200,000.00
Operating expenses:
Payroll	146,800.00
Advertising	52,700.00
Rental	8,750.00
Cash outflow from operations in January	588,250.00
Workings for Answer 3
Cash budget for January	Amount $
Beginning cash balance	120,000.00
Add: Cash receipts	1,084,000.00
Total cash available	1,204,000.00
Less: Cash payments for operations	588,250.00
Less: Interest paid	2,400.00
Preliminary cash balance	613,350.00
Less: Repayment of bank loan	463,350.00
Ending cash balance	150,000.00
Answer 3	Amount $
Bank loan- opening	480,000.00
Less: Repayment of bank loan	463,350.00
Bank loan- closing	16,650.00