Question

A firm has estimated its sales, purchases from suppliers, and wages and miscellaneous operating cash outlays for the first four months of next year as follows:

Months	Sales	Purchases	Wages & Misc
January	$100,000	$60,000	$20,000
February	$102,000	$70,000	$30,000
March	$105,000	$55,000	$35,000
April	$110,000	$50,000	$25,000

It estimates that 50 percent of its sales will be for cash, and that it will receive the remaining portion in two equal amounts at the end of the subsequent two months. It plans to pay for all of its purchases two months after the purchase date.

The firm is scheduled to pay dividends of $40,000 in January, and to pay $20,000 for new equipment in March. Its beginning cash balance is $30,000, and the firm wishes to maintain a minimum balance of $10,000. Wages and miscellaneous must be paid monthly without delay. Estimate the firm’s cash budget for the first four months of next year. Assume that the sales and purchases were the same in November and December as they are estimated to be in January.

Answer 1

Months	Sales	Purchases	Wages & Misc
November	100000	60000
December	100000	60000
January	100000	60000	20000
February	102000	70000	30000
March	105000	55000	35000
April	110000	50000	25000
	January	february	March	April
beginning cash balance	30000	10000	21000	10000
Collection during the month
cash sales-50% of month sale	50000	51000	52500	55000
25% in the one month after sales	25000	25000	25500	26250
25% in the 2 month after sales	25000	25000	25000	25500
total cash collection	100000	101000	103000	106750
total cash available	130000	111000	124000	116750
Payment-
Payment to supplier two month after purchase	60000	60000	60000	70000
wages & MISC	20000	30000	35000	25000
payment of dividend	40000
new equipment			20000
total payment	120000	90000	115000	95000
excess or shortage of cash	10000	21000	9000	21750
Minimum cash balance	10000	10000	10000	10000
amount borrowed or paid			1000	-1000
year end cash balance	10000	21000	10000	20750
collection of credit sale
	November	December	January	February	March	April
total sales	100000	100000	100000	102000	105000	110000
credit sales	50000	50000	50000	51000	52500	55000
50% of credit sale 1st subsequent month after sales			25000	25000	25500	26250
50% of credit sale in 2nd subsequent month after sales			25000	25000	25000	25500
Payment to supplier
	November	December	January	february	March	April
purchase	60000	60000	60000	70000	55000	50000
Payment to supplier two month after purchase date			60000	60000	60000	70000