8. The treasurer of Westmark Industrial, Inc., a wholesale distributor of househ
ID: 2562933 • Letter: 8
Question
8. The treasurer of Westmark Industrial, Inc., a wholesale distributor of household appliances, wants to estimate his company’s cash bal- ances for the first three months of 2015. Using the information below, construct a monthly cash budget for Westmark for January through March 2015. Westmark’s sales are 20 percent for cash, with the rest on 30-day credit terms. Its purchases are all on 60-day credit terms. Does it appear from your results that the treasurer should be concerned about investing excess cash or looking for a bank loan?
Westmark Industrial, Inc. Selected Information ($ thousand)
_________________________________________________
2014 (Actual) 2015 (Projected)
October November. December. January February March
_________________________________________________
Sales 360 420 1,200 600 240 240
Purchases 510 540 1,200 300 120 120
Wages payable monthly 180
Principal payment on debt due in March 210
Interest due in March 90
Dividend payable in March 300
Taxes payable in February 180
Addition to accumulated depreciation in March 30
Cash balance on January 1, 2015 300
Minimum desired cash balance 150
Explanation / Answer
Cash Budget
January
February
March
($000s)
($000s)
($000s)
Cash receipts;
Cash sale
120
48
48
Collection from credit sale
960
480
192
Total cash receipts
1080
528
240
Cash disbursements;
Payment for purchases
540
1200
300
Wages
180
180
180
Principal payment on debt
210
Interest
90
Dividends
300
Tax
180
Total cash disbursements
720
1560
1080
Net cash balance
360
(1032)
(840)
Determination of cash surplus and deficit;
Beginning cash balance
300
660
(372)
Net cash balance
360
(1032)
(840)
Total cash balance
660
(372)
(1212)
Minimum required balance
150
150
150
Cash surplus or (deficit)
510
(522)
(1362)
As it is clear that in January there is a surplus of cash $510 wheras as in February $522 will be needed and in March $1362 will be needed as bank loan.
Cash Budget
January
February
March
($000s)
($000s)
($000s)
Cash receipts;
Cash sale
120
48
48
Collection from credit sale
960
480
192
Total cash receipts
1080
528
240
Cash disbursements;
Payment for purchases
540
1200
300
Wages
180
180
180
Principal payment on debt
210
Interest
90
Dividends
300
Tax
180
Total cash disbursements
720
1560
1080
Net cash balance
360
(1032)
(840)
Determination of cash surplus and deficit;
Beginning cash balance
300
660
(372)
Net cash balance
360
(1032)
(840)
Total cash balance
660
(372)
(1212)
Minimum required balance
150
150
150
Cash surplus or (deficit)
510
(522)
(1362)
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