Reference no: EM132907526
The finance manager wants to prepare a cash budget for Year 2021. The finance manager has received the following information from the marketing and operations managers:
The sales in November 2020 were $125,000. The sales are expected to grow by 1% each month.
The sales will be collected as follows
A. 30% immediately in the same month
B. 40% in the next month
C. 28% in the third month
D. Remainder is not collected.
- Labor and Raw Material is 60%of the sales of the same month. Labor and Raw Material is paid in the same month.
- Wages and Salaries are $30,000 each month and paid in the same month.
- Depreciation expense is $10,000 each month and paid in the same month.
- The company 50,000 in the month of April.
- The company is expected to incur a purchase of machinery worth $110,000 in July 2021.
- The company pays rent of $8,000 quarterly (in March, June, September, and December each year)
Problem 1) Determine the total cash inflows for each month of Year 2021.
Problem 2) Determine the total cash outflows for each month of Year 2021
Problem 3) Determine the expected change in cash for each month of Year 2021.
Problem 4) Assume that the beginning balance in January 2021 is $10,000 and the target cash balance each month is $15,000. Determine the excess cash or loan needed for each month of Year 2021
Problem 5) Describe in your own words some of the short-term borrowing options that the company may adopt.