Helen Bowers, owner of Helen’s Fashion Designs, is planning to request a line of credit from her bank. She has prepared the following sales forecasts for parts of 2011 and 2012: Sales Labor and raw material May (2011) 200000 102000 June 200000 102000 July 380000 138000 August 560000 894000 September 740000 318000 October 380000 246000 November 380000 174000 December 110000 102000 January(2012) 200000 NA Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 10%; collections during the month following the sale, 75%; collections the second month following the sale, 15%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table. General and administrative salaries will amount to approximately $25,000 a month; lease payments under long-term lease contracts will be $10,000 a month; depreciation charges will be $35,000 a month; miscellaneous expenses will be $3,000 a month; income tax payments of $65,000 will be due in both September and December; and a progress payment of $150,000 on a new design studio must be paid in October. Cash on hand on July 1 will amount to $135,000, and a minimum cash balance of $100,000 will be maintained throughout the cash budget period. Prepare a monthly cash budget for the last 6 months of 2011. ( Prepare an estimate of the required financing (or excess funds)—that is, the amount of money Bowers will need to borrow (or will have available to invest)— for each month during that period. Assume that receipts from sales come in uniformly during the month (i.e., cash receipts come in at the rate of 1/30 each day) but that all outflows are paid on the 5th of the month. Will this have an effect on the cash budget—in other words, would the cash budget you have prepared be valid under these assumptions? If not, what can be done to make a valid estimate of peak financing requirements? No calculations are required, although calculations can be used to illustrate the effects.

Helen Bowers, owner of Helen’s Fashion Designs, is planning to request a line of credit from her bank. She has prepared the following sales forecasts for parts of 2011 and 2012: Sales Labor and raw material May (2011) 200000 102000 June 200000 102000 July 380000 138000 August 560000 894000 September 740000 318000 October 380000 246000 November 380000 174000 December 110000 102000 January(2012) 200000 NA Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 10%; collections during the month following the sale, 75%; collections the second month following the sale, 15%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table. General and administrative salaries will amount to approximately $25,000 a month; lease payments under long-term lease contracts will be $10,000 a month; depreciation charges will be $35,000 a month; miscellaneous expenses will be $3,000 a month; income tax payments of $65,000 will be due in both September and December; and a progress payment of $150,000 on a new design studio must be paid in October. Cash on hand on July 1 will amount to $135,000, and a minimum cash balance of $100,000 will be maintained throughout the cash budget period. Prepare a monthly cash budget for the last 6 months of 2011. ( Prepare an estimate of the required financing (or excess funds)—that is, the amount of money Bowers will need to borrow (or will have available to invest)— for each month during that period. Assume that receipts from sales come in uniformly during the month (i.e., cash receipts come in at the rate of 1/30 each day) but that all outflows are paid on the 5th of the month. Will this have an effect on the cash budget—in other words, would the cash budget you have prepared be valid under these assumptions? If not, what can be done to make a valid estimate of peak financing requirements? No calculations are required, although calculations can be used to illustrate the effects.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Helen Bowers, owner of Helen’s Fashion Designs, is planning to request a line of credit from her bank. She has prepared the following sales forecasts for parts of 2011 and 2012:

	Sales	Labor and raw material
May (2011)	200000	102000
June	200000	102000
July	380000	138000
August	560000	894000
September	740000	318000
October	380000	246000
November	380000	174000
December	110000	102000
January(2012)	200000	NA

Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 10%; collections during the month following the sale, 75%; collections the second month following the sale, 15%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table.

General and administrative salaries will amount to approximately $25,000 a month; lease payments under long-term lease contracts will be $10,000 a month; depreciation charges will be $35,000 a month; miscellaneous expenses will be $3,000 a month; income tax payments of $65,000 will be due in both September and December; and a progress payment of $150,000 on a new design studio must be paid in October. Cash on hand on July 1 will amount to $135,000, and a minimum cash balance of $100,000 will be maintained throughout the cash budget period.

Prepare a monthly cash budget for the last 6 months of 2011. (
Prepare an estimate of the required financing (or excess funds)—that is, the amount of money Bowers will need to borrow (or will have available to invest)— for each month during that period.
Assume that receipts from sales come in uniformly during the month (i.e., cash receipts come in at the rate of 1/30 each day) but that all outflows are paid on the 5th of the month. Will this have an effect on the cash budget—in other words, would the cash budget you have prepared be valid under these assumptions? If not, what can be done to make a valid estimate of peak financing requirements? No calculations are required, although calculations can be used to illustrate the effects.

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.