Part Two: Cash Budget Capers, Inc. is developing its cash budget for the next ye

Question

Part Two: Cash Budget

Capers, Inc. is developing its cash budget for the next year. Of Capers%u2019 sales, 20% is for cash, another 60% is collected in the month following sale, and 20% is collected in the second month following sale. November and December sales for 2010 were $229000 and $250,000, respectively.

Capers%u2019 purchases its raw materials two months in advance of its sales equal to 70% of its final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February, and payment is made in March.

In addition, Capers pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments for $32,000 are made each quarter beginning in March.

The company%u2019s cash balance at December 31, 2010, was $26,000 and minimum balance of $25,000 must be maintained at all times. Assume that any short-term financing needed to maintain cash balance would be paid off in the month following the month of financing if sufficient funds are available.

Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. For example, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the beginning of May.

Sales for Capers Inc.:                                             

Required:

January $229,000 February $250,000 March $270,000 April $275,000 May $280,000 June $290,000 July $280,000 August $260,000

Explanation / Answer

Hi,

Please find the cash budget as follows:

Thanks.

Cash Budget






From January to July







January February March April May June July Beginning cash 26000 62600 81000 76300 117300 159300 182300 Sources of Cash:






Cash sales 45800 50000 54000 55000 56000 58000 56000 Accounts receivable collected 195800 187400 195800 212000 219000 223000 230000 Total cash available (A) 267600 300000 330800 343300 392300 440300 468300







Uses of Cash:






Payments To Suppliers 175000 189000 192500 196000 203000 196000 182000 Rent 10000 10000 10000 10000 10000 10000 10000 Other Expenditure 20000 20000 20000 20000 20000 20000 20000 Taxes paid 0 0 32000 0 0 32000 0 Total Uses of cash (B) 205000 219000 254500 226000 233000 258000 212000 Cash balance (A-B) 62600 81000 76300 117300 159300 182300 256300

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