Question

Texas Rex expects the following Cash Receipts in each quarter:

                     Q1                     Q2                          Q3                          Q4                         

                     $10,600           $11,850                 $14,775                 $19,625

Texas Rex believes the amount of cash needed for payments on account for raw materials each quarter is:

                     Q1                     Q2                          Q3                          Q4                         

                     $4,594              $5,039                   $6,219                   $6,819

The Cash Budget is critically important to the survival of businesses. It tells management how much cash is available, and shortfalls of cash need to be anticipated and handled through expense reductions or financing.

Assume that Texas Rex’s beginning cash balance is $5200. The company requires a $1000 minimum cash balance for the end of each quarter. Money can be borrowed in increments of $1000. Interest is 12% per year. Borrowings take place at the beginning of a quarter and repayments occur at the end of a quarter.

Budgeted depreciation is $540 per quarter for overhead and $150 per quarter for selling and administrative expenses. The company plans to purchase additional screen-printing equipment at a cost of $6500 in the first quarter. Corporate income taxes are expected to be $3469 and will be paid at the end of the fourth quarter.

Texas Rex, Inc.

Cash Budget

For the year ending December 31, 2018

                                                                Q1                          Q2                          Q3                          Q4                          Total

Beginning Cash Balance         

Cash Collections                  

Total Cash Available                 

Less Cash Payments for:              

Raw Materials

Direct Labor

Overhead

S & Adm Expenses

Income Taxes

Equipment                                         _______              _______              ________           _______    ________

Total Disbursements                    

Excess (deficiency) of cash

Financing:

Borrowings

Repayments

Interest                                            _______              _______              ________           _______    ________

Total Financing

Ending Cash Balance

Answer 1

	Q1	Q2	Q3	Q4
Beginning cash balnce	5200	4016	10137	18003
Cash collection	10600	11850	14775	19625
Total cash available	15800	15866	24912	37628
Less: Cash payments
raw material	4594	5039	6219	6819
Labour
Overhead	540	540	540	540
S & Adm Exp	150	150	150	150
Income taxes				3469
Equipment	6500
Total disbursement	11784	5729	6909	10978
Excess/ (deficiency)	4016	10137	18003	26650
Financing :
Borrowing
Repayments
Interest
Total financing	0	0	0	0
Ending cash balance	4016	10137	18003	26650

As the ending balance at the end of each quarter is more than $1000, there is no need to borrow.

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