Question

The PM Company has planned the following sales for the next three months:

	January	February	March
Budgeted Sales	$40,000	$50,000	$70,000

Sales are made 20% for cash and 80% on account (A/R). From experience, the company has learned that a month's sales on account are collected according to the following pattern:

Month of sale:	60%
First month following sale:	30%
Second month following sale:	8%
Uncollectible:	2%

The following additional information has been provided for March:

Inventory purchases (70% paid in March; 30% paid in April):	$28,000
Operating expenses, excluding depreciation (all paid in March)	$40,000
Depreciation expense for March	$ 5,000
Dividends paid in March	$ 3,000
Equipment purchases (50% paid in March, 50% paid in April)	$21,000

The company requires a minimum cash balance of $5,000 to start a month. The beginning cash balance in March is budgeted to be $6,000.

Required:
a) Compute the budgeted cash receipts for March.

b) Prepare a cash budget for the month of March, including the budgeted cash receipts you computed for part a) above, cash outflows and financing requirements. The company can borrow in any dollar amount and will not pay interest until April.

Answer 1