Problem 1
Cash receipts A firm reported actual sales of $65,000 in the month of June and $70,000 in
July. The sales forecasts indicate that sales are expected to be $85,000, $92,000, and $95,750
for the months of August, September, and October, respectively. Sales are 60% cash and
40% credit, and credit sales are collected evenly over the following 2 months. No other cash
receipts were received. What are the firm’s expected cash receipts for the months of
August, September, and October?
Solution:
June July August September October
Sales Forecast 65,000 70,000 85,000 92,000 95,750
Cash Sales (60%) 39,000 42,000 51,000 55,200 57,450
Collection of A/R
-Lagged 1 month (20%) 13,000 14,000 17,000 18,400
-Lagged 2 month (20%) 13,000 14,000 17,000
Other cash receipts
Total Cash Receipts 78,000 86,200 92,850
Problem 2
Cash disbursements schedule The Coffee Specialist Corporation approached you to compile
a cash disbursement schedule for the months of March, April, and May. Sales: January =
$520,000; February = $540,000; March = $550,000; April = $600,000; May = $660,000;
June = $670,000
Purchases: Purchases are calculated as 70% of the following month’s sales, 50%of
purchases are made in cash, 30% of purchases are settled one month after purchase, and
the remaining 20% of purchases are settled two months after purchase. Rent: The firm
pays rent of $9,500 per month.
Wages and salaries: The fixed wage and salary costs are $7,500 per month plus a variable
cost of 6.5% of the current month’s sales.
Taxes: The tax bill to be paid in May amounts to $57,500.
Fixed asset outlays: New equipment will be acquired during March at a cost of $85,000.
Interest payments: An amount of $32,000 for interest is due in March. Cash dividends:
Dividends of $15,000 will be paid in April.
Solution:
January February March April May June
Sales 520,000 540 ,000 550,000 600,000 660,000 670,000
Purchases
(70% of 364,000 378,000 385,000 420,000 462,000 469,000
Sales)
Cash
Purchases 182,000 189,000 192,500 210,000 231,000 234,500
(50%)
Payment of
A/P
109,200 113,400 115,500 126,000 138,600
-Lagged 1
month (30%)
Payment of
A/P
72,800 75,600 77,000 84,000
-Lagged 2
month (20%)
Rent Payment
9,500 9,500 9,500 9,500 9,500 9,500
Wages and (7,500+ (7,500+ (7,500+ (7,500+ (7,500+ (7,500+
Salaries 6.5% of 6.5% of 6.5% of 6.5% of 6.5% of 6.5% of
Sales) Sales) Sales) Sales) Sales) Sales)
Payment
41,300 42,600 43,250 46,500 50,400 51,500
Taxes
Payment 57,500
Fixed assets
outlays 85,000
Interest
Payment 32,000
Cash
dividends 15,000
Total cash
disbursement 232,800 350,300 548,450 472,100 551,400 517,650
s
Problem 3
Cash budget: Basic Farmers Delight Corporation reported sales of $350,000 in June,
$380,000 in July, and $390,000 in August. The forecasts for September, October, and
November are $385,000, $418,000, and $429,000, respectively. The initial cash balance on
September 1 is $150,000, and a minimum of $8,000 should be kept. Use the given
information to compile a cash budget for the months of September, October, and
November. (1) Farmers Delight predicts that 5% of its sales will never be collected, 30% of
its sales will be cash sales, and the remaining 65% will be collected in the following month.
(2) Farmers Delight receives other monthly income of $3,000. (3) The actual or expected
purchases are $150,000, $120,000, and $115,000 for the months of September to November,
respectively, and 50% are paid in cash while the remainder is paid in the following month.
The purchases for August were $120,000. (4) Monthly rent is $3,500 chargeable only in
October and November. (5) Wages and salaries are 12% of the previous month’s sales.(6)
Cash dividends of $4,600 are declared and will be paid in September.(7) Long-term loan
repayment of principal and interest of $4,700 is due in October.(8) Additional equipment
costing $8,500 is ordered and scheduled to be paid for in cash in November.(9) Taxes of
$8,250 are due in November.
Solution
1- Prepare A schedule of cash receipts for Farmers Delight Corporation
June July August September October November
Sales
Forecast 350,000 380,000 390,000 385,000 418,000 429,000
Cash sales
(30%) 105,000 114,000 117,000 115,500 125,400 128,700
Collection
of A/R 227,500 247,000 253,500 250,250 271,700
Lagged 1
month
(65%)
Other
receipt 3,000 3,000 3,000 3,000 3,000 3,000
Total cash
receipt 372,000 378,650 403,400
2- Prepare A schedule of cash disbursements for Farmers Delight Corporation
June July August September October November
Purchases 120,000 150,000 120,000 115,000
Cash
purchase 60,000 75,000 60,000 57,500
(50%)
Payment of
A/P
Lagged 1 60,000 75,000 60,000
month (50%)
Rent payment 3,500 3,500
Wages and (12% of (12% of (12% of
salaries 390,000) 385,000) 418,000)
payment 46,800 46,200 50,160
Cash
Dividends 4,600
Principals and
Interest 4,700
Payment
Fixed assets
outlays 8,500
Taxes 8,250
payments
Total cash
disbursements 186,400 189,400 187,910
3- Prepare the Cash budget
September October November
Total cash receipt 372,000 378,650 403,400
Less: Total cash 186,400 189,400 187,910
disbursements
Net cash flow 185,600 189,250 215,490
Add: Beginning cash 150,000 335,600 524,850
Ending cash 335,600 524,850 740,340
Less: Minimum cash 8,000 8,000 8,000
balance
Require total
financing
Excess cash balance 327,600 516,850 732,340