Prepare for a cash budget: The Sharpe Corporation’s projected sales for the firs
ID: 2384382 • Letter: P
Question
Prepare for a cash budget: The Sharpe Corporation’s projected sales for the first eight months of 2014 are as follows:
January $90,000
February $120,000
March 135,000
April 240,000
May $300,000
June 270,000
July 225,000
August 150,000
Of Sharpe’s sales 10 percent is for cash, another 60 percent is collected in the month following the sale, and 30 percent is collected in the second month following the sale. November and December sales for 2013 were $220,000 and $175,000, respectively.
Sharpe purchases its raw material 2 months in advance of its sales equal to 60 percent of the final sales price .The supplier is paid 1 month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March.
In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March.
The company’s cash balance at December 31, 2013 was $22,000; a minimum balance of 15,000 must be maintained at all times. Assume that any short term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interests on short term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus if the month of April the firm expects to have a need for an additional $60500, these funds would be borrowed at the beginning of April with interest of $605 (ie…12*1/12*60500) owed for April being paid at the beginning of may
a. Prepare a cash budget for Sharpe covering the first 7 months of 2014.
b. Sharpe has $200,000 in notes payable due July that must be repaid or renegotiated for an extension. Will the firm have sufficient cash to repay the notes?
** please answer in excel** I would like to be able to follow along so I can understand and complete the other related assignments** thank you
Explanation / Answer
Calculations for the above
Answer (a) Cash Budget of Sharpe Corporation for the First Seven month of 2014 2014 Cash Budget January February March April May June July Opening Cash Balance 22000 100000 107500 23500 15000 14395 67515 Expected Cash collection from Sales (From A in calculations) 180000 118500 112500 141000 214500 279000 274500 Financing taken for maintaining minimum cash balance 60500 Total Cash Received 180000 118500 112500 201500 214500 279000 274500 Cash Payment for Raw Material ( From B in calculations) 72000 81000 144000 180000 162000 135000 90000 Rent Payment 10000 10000 10000 10000 10000 10000 10000 Other Expenses 20000 20000 20000 20000 20000 20000 20000 Tax Payments 22500 22500 Interest payment for Financing (From C in Calculations) 605 380 Repayment of Financing taken for maintaining cash balance 22500 38000 Total Cash Paid 102000 111000 196500 210000 215105 225880 120000 Closing Cash Balance (opening balance +receipts - payments) 100000 107500 23500 15000 14395 67515 222015 Answer (b) Notes Payable maturing in July 2014 200000 Closing Cash Balance estimated in July 2014 222015 Cash available after maintaining minimum balance of 15000 207015 As the cash available after maintainence of minimum balance is sufficient, the notes payable maturing in July 2014 can be repaid