In his third year of business Bill begins selling other types of baked goods and

Question

In his third year of business Bill begins selling other types of baked goods and specialty coffees and would like to open another shop, but will need a loan to expand operations. Mr. Money, the banker, will finance the expansion if Bill can present an acceptable three-month financial plan/budget for January through March. Asia lall Stall es : r 19wcamber .. “ " 30 00() IkXXHTlber 40,000 Projected Sales: January . . . . $40,000 Of Bill's sales, 60 percent are for cash and the remaining 40 percent are receivables. Of the receivables, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Food/Supplies Purchases cost 30 percent of sales and are paid for in the month after the purchase. Payroll expense is 20 percent of sales and selling and administrative expenses are 15 percent of sales and both are paid in the month incurred. Overhead expense is $18,000 and is also paid in the current month; depreciation expense is $1,000 per month. Estimated Taxes of $5,000 will be paid in January. Bill estimates that they will need $100,000 in March for the expansion. Cash at the beginning of January is $10,000 which is the minimum desired cash balance or cushion that Bill would like to maintain each month. Bill will plan for borrowing as needed and will plan to pay down the balance whenever he has a surplus. Requirement: Prepare a schedule of monthly cash receipts, monthly cash payments, and a complete monthly cash budget for January, February and March adding necessary formulas to the worksheet provided.

Explanation / Answer

Schedule of Monthly Cash Receipts (Amounts in $)

Schedule of Cash Payments (Amounts in $)

Schedule of Cash Budget (Amounts in $)

Working Notes:-

i) There is a deficiency of $1,000 in the month of january, thus total borrowings of $11,000 will be required in january to maintain minimum cash balance of $10,000 and to cover deficiency of $1,000.

ii) There is a excess cash of $3,500 in the month of February therefore borrowing of $6,500 ($10,000 - $3,500) will required to maintain minimum cash balance of $10,000.

iii) $100,000 is required for expansion in the month of march and excess cash is $5,750 in the month of march, therefore the borrowings of $104,250 will required in March to maintain minimum cash of $10,000 and for expansion purposes.

Particulars January February March 1) Total Sales 40,000 30,000 35,000 2) Cash Sales (1*60%) 24,000 18,000 21,000 3) Credit Sales (1 - 2) 16,000 12,000 14,000 4) Collection of cash for November [($30,000*40%)*50%] 6,000 0 0 5) Collection of cash for December [($40,000*40%)*50%] 8,000 8,000 0 6) Collection of cash for January [($40,000*40%)*50%] 0 8,000 8,000 7) Collection of cash for February [($30,000*40%)*50%] 0 0 6,000 8) Total Cash Receipts (2+4+5+6+7) 38,000 34,000 35,000

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