# Cash Budget

Prepare for a cash budget: The Sharpe Corporation’s projected sales for the first eight months of 2011 are as follows:

January \$190,000 May \$300,000

February \$120,000 June 270,000

March 135,000 July 225,000

April 240,000 August 150,000

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 \$220,000 and \$175,000, respectively.

Sharpe purchases its raw material 2 months in advance of is sales. The purchases are equal to 60 percent of the final sales price of Sharpe’s products.. The supplier is paid 1 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 \$10,000 per month for rent and \$20,000 each month for other expenditures. Tax prepayments of \$22,500 are made each quarter, beginning in March.
The company’s cash balance at December 31, 2010 was \$22,000. This is the minimum balance the firm wants to maintain. Any borrowing that is needed to maintain this minimum is paid off in the subsequent month if there is sufficient cash. 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 \$60,500, these funds would be borrowed at the beginning of April with interest of \$605 (0.12 x 1/12 x \$60.500) owed for April being paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first 7 months of 2011.
b. Sharpe has \$200,000 in notes payable due July that must be repaid or renegotiated for an extension. Will the firm have sufficient cash to repay the notes?
discuss each account briefly

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