Preparing a cash budget Fayette Medical Clinic has budgeted the following cash f
ID: 2581603 • Letter: P
Question
Preparing a cash budget
Fayette Medical Clinic has budgeted the following cash flows:
January February March
Cash receipts $240,000 $232,000 $272,000
Cash payments
For inventory purchases 220,000 164,000 190,000
For S&A purchases 62,000 64,000 54,000
Fayette Medical had a cash balance of $16,000 on January 1. The company desires to maintain a cash cushion of 10,000. Funds are assumed to be borrowed, in increments of $2,000, and repaid on the last day of each month; the interest rate is 1 percent per month. Repayments may be made in any amount available. Fayette pays its vendors on the last day of the month also. The company had a monthly $80,000 beginning in its line of credit liability account from this year’s quarterly results.
Required
Explanation / Answer
F MEDICAL CLINIC Cash budget for quarter ended 31st March Particulars January February March Beginning Balance $ 16,000 $ 11,200 $ 10,000 Cash Receipts $ 240,000 $ 232,000 $ 272,000 Cash avaiable for disbursements (a) $ 256,000 $ 243,200 $ 282,000 Less: Cash disbursements Inventories $ 220,000 $ 164,000 $ 190,000 S & A expenses $ 62,000 $ 64,000 $ 54,000 Interest on line of credit $ 800 $ 800 $ 800 Total disbursements (b) $ 282,800 $ 228,800 $ 244,800 Excess/ deficiency(-) (c) = (a)-(b) $ (26,800) $ 14,400 $ 37,200 Minimum cash required $ 10,000 $ 10,000 $ 10,000 Total cash needed $ 36,800 $ (4,400) $ (27,200) Financing $ 38,000 $ - $ - Interest @1% per month $ 380 $ 340 Balance cash before repayment $ 14,020 $ 36,860 Repayment $ 4,020 $ 26,860 Ending Balance $ 11,200 $ 10,000 $ 10,000 Notes: 1.Interest on line of credit of $80,000 @1% per month is $800. 2.Repayment of amount , hence considered @$4,020 for Feb., and $26,860 for March. 3.Interest for March on borrowing is calculated @1% on $33,980 ($38,000 - $4,020)