Jamison Company\'s financial managers are meeting with the company\'s bank to re

Question

Jamison Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year The following budget assumptions were used to construct the budget: Jamison's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Jamison's sales are made on credit with terms of 2/10, net 30. Jamison's experience is that 25% is collected from customers who take advantage of the discount, 65% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts The cost of materials averages 45% of Jamison's finished product. The purchases are generally made one month in advance of the sale, and Jamison pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,100 million, then purchases during June would be $495 ($1,100 million x 0.45), and this amount would be paid in July. Other cash expenses include wages and salaries a 19% of sales, monthly rent of $40 million, and other t expenses at 5% of sales. Estimated tax payments of $59 million and $61 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,000 million payment for a new plant must be made in September Assume that Jamison's targeted cash balance is $300, and the estimated cash on hand on July 1 is $251 Use the preceding information to fill in the missing amounts in the following cash budget.

Explanation / Answer

Jamoson Company Cash Budget for the six months ending December 31, Year 1 ($ Millions) May June July August September October November December Credit Sales 950 980 1000 1010 1030 1050 1080 1100 Credit Purchase 450 455 464 473 486 495 0 July August September October November December Cash receipts Collection from this month's sales (Month's sales * 25% less 2% discount) 245 247 252 257 265 270 Collection from previous month's sales 637 650 657 670 683 702 Collection from sales two months previously 95 98 100 101 103 105 Total Cash receipts 977 995 1009 1028 1051 1077 Cash Disbursements Payment for credit purchases 450 455 464 473 486 495 Wages and Salaries 190 192 196 200 205 209 Monthly rent 40 40 40 40 40 40 Other Expenses 50 51 52 53 54 55 Tax 59 61 Plant 1000 Total Cash Disbursements 789 738 1752 827 785 799 Net Cash Flow (Receipts - Disbursement) 188 257 -743 201 266 278 Beginning Cash Balance 251 439 696 -47 154 420 Endig Cash Balance 439 696 -47 154 420 698 Target Cash Balance 300 300 300 300 300 300 Surplus/(shortfall) Cash 139 396 -347 -146 120 398

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

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