James Buchanan Orthotics and Prosthetics is planning to request a line of credit

Question

James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October?

May June July August September October November December January Collections worksheet: Billed charges $180,000 $180,000 $360,000 $540,000 $720,000 $360,000 $360,000 $90,000 $180,000 Collections Within 30 days 30-60 days 60-90 days Total collections Supplies worksheet: Amount of labor and supplies $90,000 $90,000 $126,000 $882,000 $306,000 $234,000 $162,000 $90,000 Payments made for labor and supplies Net cash gain (loss): Total collections Total purchases General and administrative salaries Lease payments Miscellaneous expenses Taxes Progress payment Total payments Net cash gain/loss Borrowing/surplus summary: Cash at beginning with no borrowing Cash at end with no borrowing Target cash balance (given) Cumulative surplus cash / loan balance Here is the work sheet

Explanation / Answer

May June July August September October November December January Collections worksheet Billed Charges 180000 180000 360000 540000 720000 360000 360000 90000 180000 Collections within 30 days - 10% 18000 18000 36000 54000 72000 36000 36000 9000 18000 30-60 days - 75% 135000 135000 270000 405000 540000 270000 270000 67500 60-90 days - 15% 27000 27000 54000 81000 108000 54000 54000 Total collections 18000 153000 198000 351000 531000 657000 414000 333000 139500 Supplies worksheet Amount of labor and supplies 90000 90000 126000 882000 306000 234000 162000 90000 Payment made for labor and supplies 90000 90000 126000 882000 306000 234000 162000 90000 Net cash gain(loss)    Total collections 198000 351000 531000 657000 414000 333000 139500    Total purchases 90000 126000 882000 306000 234000 162000 90000    General and administrative salaries 27000 27000 27000 27000 27000 27000 27000     Lease payments 9000 9000 9000 9000 9000 9000 9000     Miscellaneous expenses 2700 2700 2700 2700 2700 2700 2700     Taxes 63000 63000     Progress payments 180000      Total payments 128700 164700 983700 524700 272700 263700 128700      Net cash gain / ( loss) 69300 186300 -452700 132300 141300 69300 10800 Borrowing/surplus summary       Cash at beginning with no borrowing 132000 201300 387600 90000 222300 363600 432900       Cash at end with no borrowing 201300 387600 -65100 222300 363600 432900 443700        Target cash balance ( given) 90000 90000 90000 90000 90000 90000 90000        Cummulative surplus cash/loan balance 201300 588900 678900 901200 1264800 1697700 2141400

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