Question

PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most optimistic projections. Sales are made on account and collected as follows: 51% in the month after the sale is made and 46% in the second month after sale. Merchandise purchases and operating expenses are paid as follows:

In the month during which the merchandise is purchased or the cost is incurred	80	%
In the subsequent month	20	%

PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:

	September				October				November				December
Sales	$	42,300			$	53,600			$	67,900			$	59,000
Cost of goods sold:
Beginning inventory	$	5,760			$	14,300			$	20,810			$	22,320
Purchases		38,000				44,300				48,800				33,100
Cost of goods available for sale	$	43,760			$	58,600			$	69,610			$	55,420
Less: Ending inventory		(14,300	)			(20,810	)			(22,320	)			(19,980	)
Cost of goods sold	$	29,460			$	37,790			$	47,290			$	35,440
Gross profit	$	12,840			$	15,810			$	20,610			$	23,560
Operating expenses		10,500				12,800				14,700				15,900
Operating income	$	2,340			$	3,010			$	5,910			$	7,660

Cash on hand August 31 is estimated to be $40,040. Collections of August 31 accounts receivable were estimated to be $19,570 in September and $15,380 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $23,990.
  

Required:

a-1. Prepare a cash budget for October and November. (Beginning cash should be indicated with a minus sign if it is a negative amount.)

b-1. Assume now that PrimeTime Sportswear is a mature firm, and that the September–November data represent a seasonal peak in business. Prepare a cash budget for December, January, and February, assuming that the income statements for January and February are the same as December's. (Beginning cash should be indicated with a minus sign if it is a negative amount.)

Answer 1

Cash flow analysis
	September	October	November	December	January	February
Cash as on beginning of the month	$         40,040	$   (1,911)	$   (18,730)	$     (32,119)	$ (22,964)	$     (8,870)
Collection for Aug	$         19,570	$   15,380	0	0	0	0
Collection from Current Month Sale( 3% )	$            1,269	$      1,608	2037	1770	1770	1770
Collection from Previous Month Sale( 51% )		$   21,573	27336	34629	30090	30090
Collection from prior to Previous Month Sale( 46% )		$             -	19458	24656	31234	27140
Payment in Sep (Aug Payable	$       (23,990)	$             -	0	0	0	0
Payment of current Month Mercandise Purchase( 80%	$       (30,400)	$ (35,440)	-39040	-26480	-26480	-26480
Payment of Current month Expenses( 80%	$         (8,400)	$ (10,240)	-11760	-12720	-12720	-12720
Payment of prior Month Mercandise Purchase( 20%)		$   (7,600)	-8860	-9760	-6620	-6620
Payment of prior month Expenses( 20%)		$   (2,100)	-2560	-2940	-3180	-3180
Net Cash Balance as at the end of the month	$         (1,911)	$ (18,730)	$   (32,119)	$     (22,964)	$   (8,870)	$       1,130