Question

James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October? Many say nothing in October but someone else says Loan Balance for October - $ 151500 What is the correct way? May June July August September October November December January Collections worksheet: Billed charges $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $90,000 $180,000 Collections Within 30 days 30-60 days 60-90 days Total collections Supplies worksheet: Amount of labor and supplies $90,000 $90,000 $126,000 $882,000 $306,000 $234,000 $162,000 $90,000 Payments made for labor and supplies Net cash gain (loss): Total collections Total purchases General and administrative salaries Lease payments Miscellaneous expenses Taxes Progress payment Total payments Net cash gain/loss Borrowing/surplus summary: Cash at beginning with no borrowing Cash at end with no borrowing Target cash balance (given) Cumulative surplus cash / loan balance

May

June

July

August

September

October

November

December

January

Collections worksheet:

Billed charges

$180,000

$180,000

$360,000

$540,000

$720,000

$360,000

$360,000

$90,000

$180,000

Collections

Within 30 days

30-60 days

60-90 days

Total collections

Supplies worksheet:
	Amount of labor and supplies			$90,000	$90,000	$126,000	$882,000	$306,000	$234,000	$162,000	$90,000
	Payments made for labor and supplies

Net cash gain (loss):
	Total collections
	Total purchases
	General and administrative salaries
	Lease payments
	Miscellaneous expenses
	Taxes
	Progress payment
	Total payments
	Net cash gain/loss

Borrowing/surplus summary:
	Cash at beginning with no borrowing
	Cash at end with no borrowing
	Target cash balance (given)
	Cumulative surplus cash / loan balance

Answer 1

James Buchanan Orthotics and Prosthetics
		May	June	July	August	September	October	November	December	January
Collection worksheet
	Bill charged	180000	180000	360000	540000	720000	360000	360000	90000	180000
Collections
	Within 30 days	18000	18000	36000	54000	72000	36000	36000	9000	18000
	30 to 60 days		135000	135000	270000	405000	540000	270000	270000	67500
	60 to 90 days			27000	27000	54000	81000	108000	54000	54000
Total collections				198000	351000	531000	657000	414000	333000	139500
		May	June	July	August	September	October	November	December	January
Supplies Worksheet
Amount of Labor and supplies		90000	90000	126000	882000	306000	234000	162000	90000
Payment made for labor & supplies			90000	90000	126000	882000	306000	234000	162000	90000
Net Cash Gain/(Loss)
Total collection				198000	351000	531000	657000	414000	333000	139500
Total purchases				90000	126000	882000	306000	234000	162000	90000
General and administrative Salaries				27000	27000	27000	27000	27000	27000	27000
Lease payments				9000	9000	9000	9000	9000	9000	9000
Miscellaneous expenses				2700	2700	2700	2700	2700	2700	2700
Taxes						63000
Progress payments							180000
Total payments				128700	164700	983700	524700	272700	200700	128700
Net Cash Gain/(Loss)				69300	186300	-452700	132300	141300	132300	10800
Borrowing surplus summery
Cash at the beginning				132000	201300	387600	90000	90000	143400	275700
Cash at the end				201300	387600	90000	90000	143400	275700	286500
Target Cash balance				90000	90000	90000	90000	90000	90000	90000
Cumulative surplus cash/(Loan)				111300	297600	-155100	0
	Loan borrowed
	Loan repayment						67200	87900
Yes the Loan is needed at the end of September amounting to $155100 but not $151500 as mentioned in the question.