Reference no: EM132955296
Consider the following cash budgeting example for Silverlake Pharmaceutical Company. After referring to the information provided below, prepare a cash budget for the company for the period July to December 2018. All dollar amounts are in thousands.
Gross sales by month
May 2018 $ 5,000
June 5,000
July 10,000
August 15,000
September 20,000
October 10,000
November 10,000
December 5,000
January 2019 10,000
- All sales transactions are on credit, with historical data showing that 30% of current revenues are collected in the current month, 50% in the next month and 20% in the second month after sale. Assume that bad debt is negligible.
- Except for supplies, assume that operating expenses are paid during the month they are incurred.
Operating expenses (monthly unless indicated otherwise) for the period:
Wages and salaries: $ 750
Insurance 250
Depreciation 300
Other expenses 3,000
Taxes (paid in Sep. and Dec.) 500
Payment for capital equipment in Oct. 1,000
- Supplies purchases in a month must equal 70% of the projected gross sales for the following month. Supplies are paid for in the month after purchase.
- The corporation must maintain an ending cash balance of $3,500 each month and meets a cash shortfall through a short-term loan. (Ignore interest for purposes of this exercise.) For simplicity in this exercise, assume that excess cash remains as cash (i.e., is not reinvested). Assume that at the beginning of July, the company had a cash balance of $3,500 with no short-term loan outstanding.
Problem 1: After referring to the information provided below, prepare a cash budget for the company for the period July to December 2018.