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 54,500. 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

WillBorn Builders Nov   Dec Jan   Feb Mar Sales                  80,000                90,000                   70,000              90,000          30,000 Purchase                70,000                80,000                   70,000              60,000          50,000 Cash Collection schedule Collection of Cash from Sale of Dec                   54,000 Collection of Cash from Sale of Jan                   28,000              42,000 Collection of Cash from Sale of Feb              36,000          54,000 Collection of Cash from Sale of Mar            12,000 Total Collection                   82,000              78,000          66,000 Cash Payment for Purchases Cash Payment for purchase of Nov                   21,000 Cash Payment for purchase of Dec                   40,000              24,000 Cash Payment for purchase of Jan                   14,000              35,000          21,000 Cash Payment for purchase of Feb              12,000          30,000 Cash Payment for purchase of Mar          10,000 Total Cash Payments for purchases                   75,000              71,000          61,000 Other Cash payments Sales Salary                       3,400                3,200            3,000 Labor expenses                     4,000                4,000            4,000 Cash operating expenses                       1,500                1,500            1,500 Total Other Cash Payments                       8,900                8,700            8,500 a Cash Budget Jan   Feb Mar Opening Balance                     4,500                2,600                900 Cash Collection                   82,000              78,000          66,000 Total Available Cash balance                   86,500              80,600          66,900 Cash Payments for purchase                   75,000              71,000          61,000 Other Cash Payments                     8,900                8,700            8,500 Total Cash Disbursement                     83,900              79,700          69,500 Excess /(surplus) of cash collection over payment                     2,600                    900          (8,500) Cash Balance closing                       2,600                    900          (8,500) b In Jan & Feb the company can invest cash and in Mar the company needs to borrow.

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