Chapter 4, Problem 26P

Archer Electronics Company’s actual sales and purchases for April and May are shown here along with forecast sales and purchases for June through September:

The company makes 20 percent of its sales for cash and 80 percent on credit. Of the credit sales, 50 percent are collected in the month after the sale and 50 percent are collected two months later. Archer pays for 20 percent of its purchases in the month after purchase and 80 percent two months after.

Labor expense equals 15 percent of the current month’s sales. Overhead expense equals $\text{\$12,500}$ per month. Interest payments of $\text{\$32,500}$ are due in June and September. A cash dividend of $\text{\$52,500}$ is scheduled to be paid in June. Tax payments of $\text{\$25,500}$ are due in June and September. There is a scheduled capital outlay of $\text{\$350,000}$ in September.

Archer Electronics’ ending cash balance in May is $\text{\$22,500}$ . The minimum desired cash balance, is $\text{\$10500}$ . Prepare a schedule of monthly cash receipts, monthly cash payments, and a complete monthly cash budget with borrowing and repayments for June through September. The maximum desired cash balance is $\text{\$50,500}$ . Excess cash $\left(\text{above \$50,500}\right)$ is used to buy marketable securities. Marketable securities are sold before borrowing funds in case of a cash shortfall $\left(\text{less than \$10,500}\right)\text{.}$