PrimeTime Sportswear is a custom imprinter that began operations six months ago.

Question

PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most optimistic projections. Sales are made on account and collected as follows: 51% in the month after the sale is made and 46% in the second month after sale. Merchandise purchases and operating expenses are paid as follows:

PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:

Cash on hand August 31 is estimated to be $40,040. Collections of August 31 accounts receivable were estimated to be $19,570 in September and $15,380 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $23,990.
  

Required:

a-1. Prepare a cash budget for October and November. (Beginning cash should be indicated with a minus sign if it is a negative amount.)

b-1. Assume now that PrimeTime Sportswear is a mature firm, and that the September–November data represent a seasonal peak in business. Prepare a cash budget for December, January, and February, assuming that the income statements for January and February are the same as December's. (Beginning cash should be indicated with a minus sign if it is a negative amount.)

In the month during which the merchandise is purchased or the cost is incurred 80 % In the subsequent month 20 %

Explanation / Answer

Cash flow analysis September October November December January February Cash as on beginning of the month $         40,040 $   (1,911) $   (18,730) $     (32,119) $ (22,964) $     (8,870) Collection for Aug $         19,570 $   15,380 0 0 0 0 Collection from Current Month Sale( 3% ) $            1,269 $      1,608 2037 1770 1770 1770 Collection from Previous Month Sale( 51% ) $   21,573 27336 34629 30090 30090 Collection from prior to Previous Month Sale( 46% ) $             -   19458 24656 31234 27140 Payment in Sep (Aug Payable $       (23,990) $             -   0 0 0 0 Payment of current Month Mercandise Purchase( 80% $       (30,400) $ (35,440) -39040 -26480 -26480 -26480 Payment of Current month Expenses( 80% $         (8,400) $ (10,240) -11760 -12720 -12720 -12720 Payment of prior Month Mercandise Purchase( 20%) $   (7,600) -8860 -9760 -6620 -6620 Payment of prior month Expenses( 20%) $   (2,100) -2560 -2940 -3180 -3180 Net Cash Balance as at the end of the month $         (1,911) $ (18,730) $   (32,119) $     (22,964) $   (8,870) $       1,130

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