) LPD Logistics, Inc.\'s projected sales for the first six months of 2010 are gi

Question

) LPD Logistics, Inc.'s projected sales for the first six months of 2010 are given below. Jan. $300,000 April $350,000 Feb. $350,000 May $500,000 Mar. $475,000 June $400,000 20% of sales are collected in the month of the sale, 75% are collected in the month following the sale, and 5% are written off as uncollectible. Cost of goods sold is 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made (i.e. goods sold in March are bought and paid for in February). Total other cash expenses are $35,000/month. The company's cash balance as of February 1, 2010 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). LPD has no short term borrowing as of February 28, 2010. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is LPD's projected cash balance as of April 1, 2010?

Explanation / Answer

LPD's projected cash Budget Jan Feb March April May June Cash Inflow Sales Collections 60000 295000 357500 426250 362500 455000 Total 60000 295000 357500 426250 362500 455000 Cash Outflow Purchase payments 280000 380000 280000 400000 320000 Expenses 35000 35000 35000 35000 35000 35000 Interest on borrowing 1100 686 Total 315000 415000 316100 435686 355000 35000 Excess Cash -120000 41400 -9436 7500 420000 (+) Opening Cash balance 30000 20000 20000 (+) Short term borrowing 110000 (-) Repayment of borrowing 0 41400 Ending Cash balance 20000 20000 LPD Projected cash balance as of April 1, 2010 = $20000 Working Sales Collections Jan Feb March April May June Sales 300000 350000 475000 350000 500000 400000 Collections 20% of sales 60000 70000 95000 70000 100000 80000 - Jan Sales 225000 - Feb Sales 262500 - Mar Sales 356250 - April Sales 262500 - May sales 375000 Total 60000 295000 357500 426250 362500 455000 Purchase payments Jan Feb March April May June Sales 300000 350000 475000 350000 500000 400000 Cost of goods sold (80% of sales) 240000 280000 380000 280000 400000 320000 Purchases payments 280000 380000 280000 400000 320000

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