Willborn Builders in the building construction business. In Year 2, it is expect

Question

Willborn Builders in the building construction business. In Year 2, it is expected that 40 percent of a month's sales will be collected in cash, with the balance being collected the following month. Of the purchases, 50 percent are paid the following month, 30 percent are paid in two months, and the remaining 20 percent are paid during the month of purchase. The sales force receives $2,000 a month base pay plus a 2 percent commission. Labor expenses are expected to be $4,000 a month. Other operating expenses are expected to run about $2,000 a month, including $500 for depreciation. The ending cash balance for Year 1 was $4,500. Required: Prepare a cash budget and determine the projected ending cash balances for the first three months of Year 2. Determine the months that the company would either borrow or invest cash.

Explanation / Answer

November December January February March Sales 80000 90000 70000 90000 30000 Collection Same month - 40% 32000 36000 28000 36000 12000 next month - 60% 48000 54000 42000 54000 Total collection 32000 84000 82000 78000 66000 Purchases 70000 80000 70000 60000 50000 Same month - 20% 14000 16000 14000 12000 10000 Next month - 50% 35000 40000 35000 30000 two months - 30% 21000 24000 21000 Total purchases 14000 51000 75000 71000 61000 a) Cash Budget January February March opening balance 4500 2600 300 Cash collection 82000 78000 66000 Total 86500 80600 66300 Cash Purchases 75000 71000 61000 Sales force       Base 2000 2000 2000       Commission (2%) 1400 1800 600       labor expenses 4000 4000 4000        operating expenses 1500 1500 1500 Total disbursement 83900 80300 69100 closing balance 2600 300 -2800 b) The company can invest in the 1st month and will need to borrow funds in March

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.