Cash Budgeting Dorothy Koehl recently leased space in the Southside Mall and ope
ID: 2804234 • Letter: C
Question
Cash Budgeting
Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl has frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of just how much she must borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.
Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,300 per month, and the rent is $2,200 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $750, but Koehl has agreed to maintain an average bank balance of $5,500 - this is her target cash balance. (Disregard cash in the till, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $110,000.
Now, suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this question are minimal.)
$ 131,250
Below are incorrect answers i have already tried
The net cash flow for february is not 18,574.83
The Cumulative NCF for Jan and feb are not -3,000.00 & 24,074.83
The Surplus cash or loans needed for Jan and Feb are not -8,500.00 & 18,574.83
Please help me find the actual correct answers
Cash Budgeting
Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl has frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of just how much she must borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.
Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,300 per month, and the rent is $2,200 per month. In addition, she must make a tax payment of $10,000 in December. The current cash on hand (on December 1) is $750, but Koehl has agreed to maintain an average bank balance of $5,500 - this is her target cash balance. (Disregard cash in the till, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $110,000.
Sales Purchases December $120,000 $40,000 January 38,000 40,000 February 68,000 40,000 Prepare a cash budget for December, January, and February. I. Collections and Purchases: December January February Sales $ 120,000 $ 38,000 $ 68,000 Purchases $ 40,000 $ 40,000 $ 40,000 Payments for purchases $ 110,000 $ 40,000 $ 40,000 Salaries $ 4300 $ 4300 $ 4300 Rent $ 2200 $ 2200 $ 2200 Taxes $ 10000 --- --- Total payments $ 126,500 $ 46,500 $ 46,500 Cash at start of forecast $ 750 --- --- Net cash flow $ -6500 $ -8500 $ ?? Cumulative NCF $ -5,750 $ ?? $ ?? Target cash balance $ 5500 $ 5500 $ 5500 Surplus cash or loans needed $ -11250 $ ?? $ ??Now, suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this question are minimal.)
$ 131,250
Below are incorrect answers i have already tried
The net cash flow for february is not 18,574.83
The Cumulative NCF for Jan and feb are not -3,000.00 & 24,074.83
The Surplus cash or loans needed for Jan and Feb are not -8,500.00 & 18,574.83
Please help me find the actual correct answers
Explanation / Answer
Cash Budget for December , january and February December January February Sales 120000 38000 68000 Collection from customers Cash Collected from Customers (30 days credit) 120000 38000 Total Collections 0 120000 38000 Cash Disbursements Purchases (paid in Follwing Month) 40000 40000 40000 Payment for Purchases 110000 40000 40000 Salaries 4300 4300 4300 rent 2200 2200 2200 taxes 10000 Total Payments 126500 46500 46500 Net cash Flow -126500 73500 -8500 Cash at Beginning 750 5500 79000 Cumulative net cash flow -125750 79000 70500 Target cash balance 5500 5500 5500 Surplus cash or (Loan needed ) -131250 73500 65000 12750+5500 79000-5500 70500-5500