1. Consider the following cash budgeting example for Buckeye Pharmaceutical Comp
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Question
1. Consider the following cash budgeting example for Buckeye Pharmaceutical Company. After referring to the information provided below, prepare a cash budget for the company for the period July to December 2010. All dollar amounts are in thousands. o Gross sales by month May 2010 $ 5,000 June 5,000 July 10,000 August 15,000 September 20,000 October 10,000 November 10,000 December 5,000 January 2011 10,000 o All sales transactions are on credit, with historical data showing that 30% of current revenues are collected in the current month, 50% in the next month and 20% in the second month after sale. Assume that bad debt is negligible. o Except for supplies, assume that operating expenses are paid during the month they are incurred. Operating expenses (monthly unless indicated otherwise) for the period are as follows: Wages and salaries: $ 750 Insurance: 250 Depreciation: 300 Other expenses: 3,000 Taxes (paid in Sep. and Dec.): 500 Payment for capital equipment in Oct.: 1,000 Supplies purchases in a month must equal 70% of the projected gross sales for the following month. Supplies are paid for in the month after purchase. o The corporation must maintain an ending cash balance of $3,500 each month and meets a cash shortfall through a short-term loan. (Ignore interest for purposes of this example.) For simplicity in this example, assume that excess cash remains as cash (i.e., is not reinvested). Assume that at the beginning of July, the company had a cash balance of $3,500 with no short-term loan outstanding.
Explanation / Answer
Month Sales 30% collect in same Month 50% in next month 20 % in second month Total Collection May $5,000 $1,500 $1,500 June $5,000 $1,500 $2,500 $4,000 July $10,000 $3,000 $2,500 $1,000 $6,500 Aug $15,000 $4,500 $5,000 $1,000 $10,500 Sep $20,000 $6,000 $7,500 $2,000 $15,500 Oct $10,000 $3,000 $10,000 $3,000 $16,000 Nov $10,000 $3,000 $5,000 $4,000 $12,000 Dec $5,000 $1,500 $5,000 $2,000 $8,500 Jan $10,000 $3,000 $2,500 $2,000 $7,500 Operating Expenses Wages Insurance Depreciation Other Exp. Taxes cap equip. Total Exp May $750 $250 $300 $3,000 $4,300 June $750 $250 $300 $3,000 $4,300 July $750 $250 $300 $3,000 $4,300 Aug $750 $250 $300 $3,000 $4,300 Sep $750 $250 $300 $3,000 $500 $4,800 Oct $750 $250 $300 $3,000 $1,000 $5,300 Nov $750 $250 $300 $3,000 $4,300 Dec $750 $250 $300 $3,000 $500 $4,800 Jan $750 $250 $300 $3,000 $4,300 Month Sales Purchase May $5,000 June $5,000 $3,500 July $10,000 $3,500 Aug $15,000 $7,000 Sep $20,000 $10,500 Oct $10,000 $14,000 Nov $10,000 $7,000 Dec $5,000 $7,000 Jan $10,000 $3,500
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