Question

​(Preparation of a cash budget​)

Lewis Printing has projected its sales for the first 8 months of 2016 as​ follows:

January	​$120,000	April	​$280,000	July	​$200,000
February	140,000	May	275,000	August	200,000
March	170,000	June	200,000
​(Click on the icon located on the​ top-right corner of the data table above in order to copy its contents into a spreadsheet.​)

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. Lewis collects 30 percent of its sales in the month of the​ sale, 50 percent in the month following the​ sale, and the remaining 20 percent 2 months following the sale. During November and December of​ 2015, Lewis's sales were ​$220,000 and $165,000​, respectively. Lewis purchases raw materials 2 months in advance of its sales. These purchases are equal to 65 percent of its final sales. The supplier is paid 1 month after delivery.​ Thus, purchases for April sales are made in February and payment is made in March.In​ addition, Lewis 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 as of December​ 31, 2015, was ​$28,000​; a minimum balance of ​$20,000 must be maintained at all times to satisfy the​ firm's bank line of credit agreement. Lewis has arranged with its bank for​ short-term credit at an interest rate of 18 percent per annum ​(1.5 percent per​ month) to be paid monthly. Borrowing to meet estimated monthly cash needs takes place at the end of the​ month, and interest is not paid until the end of the following month.​ Consequently, if the firm needed to borrow​ $50,000 during​ April, then it would pay $750 ​(=0.015×​$50,000) in interest during May.​ Finally, Lewis follows a policy of repaying its outstanding​ short-term debt in any month in which its cash balance exceeds the minimum desired balance of ​$20,000.

a. Lewis needs to know what its cash requirements will be for the next 6 months so that it can renegotiate the terms of its​ short-term credit agreement with its​ bank, if necessary. To evaluate this​ problem, the firm plans to evaluate the impact of a​ ±20 percent variation in its monthly sales efforts. Prepare a​ 6-month cash budget for Lewis and use it to evaluate the​ firm's cash needs.

b. Lewis has a ​$40,000 note due in June. Will the firm have sufficient cash to repay the​ loan?a. Prepare a cash budget for Lewis Printing covering the first 6 months of $22,500.

Fill in the Collections for the month of​ January:  ​(Round to the nearest​ dollar.)

	Nov	Dec	Jan	Feb	Mar	Apr	May	June
Sales	​$220,000	​$165,000	​$120,000	​$140,000	​$170,000	​$280,000	​$275,000	​$200,000
​Collections:
Month of sale ​(30​%)			????
First month ​(50​%)			????
Second month ​(20​%)			????
Total Collections			​????

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Answer 1

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Lewis Printing
Sales Budget	November	December	January
Sales Budget	220,000.00	165,000.00	120,000.00
Collection for the month of January	Amount $
Month of sale i.e. January sales (30%)	36,000.00
First month after the sale i.e. December sales (50%)	82,500.00
Second month after the sale i.e. November sales (20%)	44,000.00
Expected cash collections in January	162,500.00