is preparing a financial plan for the next six months to determine the
financial needs of the company. The historical analysis of the company’s sales
shows that the company’s total sales are 30% cash sales and 70% credit
sales. Further analysis of credit sales
shows that the company receives 50% of the credit sales one month after the
sale and the remaining 50% in the second month after the sale. This means the
cash collections from sales are 30% in the first month of the sale, 35% in the
second month, and 35% in the third month.
The materials purchased by the company amounts to 50% of the
sales for the month. The company pays
for the purchases one month after the initial purchase. The company likes to
maintain a cash balance of $5,000. The cost of borrowing is 10%. The company plans to pay off the loan
whenever there is a surplus and borrow when there is a deficit.
The attached spreadsheet shows revenues (sales), expenses,
capital expenditures, and other expenses for Precision Machines’ next six
months. Using the information given on
the spreadsheet, prepare a cash budget for January through June and determine
the cash surplus, deficit, and the financing needs of the company.