Of Sharpe s sales 10 percent is for cash, another 60 percent is collected in the month following the sale, and 30 percent is collected in the second following the sale. November and December sales for 2010 were $220,200 and $174,100, respectively. Sharpe purchases its raw material two months in advance of is sales equal to 60 percent of their final sale price. The supplier is paid on month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March. In addition, Sharpe, pays $10,300 per month for rent and $20,600 each month for other expenditures. Tax prepayments of $22,800 made each quarter, beginning in March. The company s cash balance at December 31, 2010 was $22,70; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs take place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $64,640 these funds would be borrowed at the beginning of April with interest of $646 (i.e., 12%x1/12x$64,640) owed for April being paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first seven months of 2011.
b. Sharpe has $199,700 in notes payable due July that must be repaid or renegotiated for an extension. Will the firm have sufficient cash to repay the notes?
Complete (month by month) the cash budget below: Round to nearest dollar.
Sales for cash (10%)
First month after sales (60%)
Second month after sales (30%)
Total Cash Receipts
Total Cash Disbursements
Net Change in Cash
Net change in cash for period
(+) Beginning cash balance
(-) Interest on short-term borrowing
(-) short-term borrowing repayments
(=) Ending cash balance b/borrowing
New Financing Needed
Financing needed for period
Ending cash balance 22,700