Problem 15-10 Cash budgeting Helen Bowers, owner of Helen\'s Fashion Designs, is

Question

Problem 15-10 Cash budgeting Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 20 $186,000 186,000 372,000 540,000 720,000 360,000 360,000 90,000 180,000 May 2014 June July August September October November December January 2015 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2014 June July August September October November December $90,000 90,000 126,000 882,000 307,000 234,000 161,000 90,000 General and administrative salaries are approximately $27,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a m are $2,700 a month. Income tax payments of $64,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period a. Prepare a monthly cash budget for the last 6 months of 2014. If no entry required, leave the cell blank. Use minus sign to enter losses, loans outstanding or any other negati

Explanation / Answer

Note: 1. Depreciation charges are not taken into payments, since they are non cash expense
          2. $2,700 expense mentioned in question is taken as miscellaneous expense, as its description was hidden
          3. $132,000 is taken as cash at the start of month July, as its description was hidden

May June July Aug Sep Oct Nov Dec Jan'15 Collections & purchases sheet Sales (Gross) 186,000 186,000 372,000 540,000 720,000 360,000 360,000 90,000 180,000 Collections During month of sales (10%) (a) 18,600 18,600 37,200 54,000 72,000 36,000 36,000 90,000 18,000 During 1st month after sales (75%)(b) 139,500 139,500 279,000 405,000 540,000 270,000 270,000 67,500 During 2nd month after sales (15%)(c) 27,900 27,900 55,800 81,000 108,000 54,000 54,000 Total collections(a+b+c) 204,600 360,900 532,800 657,000 414,000 333,000 139,500 Purchases Labor & raw materials 90,000 90,000 126,000 882,000 307,000 234,000 161,000 90,000 Payments for labor & raw materials 90,000 90,000 126,000 882,000 307,000 234,000 161,000 90,000 Cash gain or loss for month Collections (d) 204,600 360,900 532,800 657,000 414,000 333,000 Payments for labor & raw materials (1) -90,000 -126,000 -882,000 -307,000 -234,000 -161,000 G&A salaries (2) -27,000 -27,000 -27,000 -27,000 -27,000 -27,000 Lease payments (3) -9,000 -9,000 -9,000 -9,000 -9,000 -9,000 Misc expenses (4) -2,700 -2,700 -2,700 -2,700 -2,700 -2,700 Income tax payments (5) -64,000 -64,000 Design studio payments (6) -180,000 Total payments (e)(1+2+3+4+5+6) -128,700 -164,700 -984,700 -525,700 -272,700 -263,700 Net cash gain (loss) during month (f) =(d+e) 75,900 196,200 -451,900 131,300 141,300 69,300 Loan requirement or cash surplus Cash at start of month 132,000 207,900 404,100 -47,800 83,500 224,800 Cumulative cash 207,900 404,100 -47,800 83,500 224,800 294,100 Target cash balance 90,000 90,000 90,000 90,000 90,000 90,000 Surplus cash or loan outstanding 117,900 314,100 -137,800 -6,500 134,800 204,100 Part b Excess funds or loan outstanding 117,900 314,100 -137,800 -6,500 134,800 204,100

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