. (Cash budget) The Sharpe Corporation’s projected sales for the first eight months

[george_careyii]

of 2004 are as follows: Ja? (Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2004 are as follows:
January $ 90,000 May $300,000
February 120,000 June 270,000
March 135,000 July 225,000
April 240,000 August 150,000
Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sale, and 30 percent is collected in the second month following sale. November and December sales for 2003 were $220,000 and $175,000, respectively.
Sharpe purchases its raw materials two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February and payment is made in March.
In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures.
Tax prepayments of ,500 are made each quarter, beginning in March.

The company’s cash balance at December 31, 2003, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cash balance is paid off in the month following the month of financing if sufficient funds are available.
Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 X 1/12 X $60,500) owed for April and paid at the beginning of May.
a. Prepare a cash budget for Sharpe covering the first seven months of 2004.
b. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?

[Unregistered]

CASE 7-39

The cash balance at January 1, 2008, is $ 82,000. Sales for December 2007 through June 2008 are
budgeted as follows:


Net Sales Net Sales

December 2007 $236,000 April $170,000
January 2008 137,000 May 156,000
February 142,000 June 148,000
March 182,000



Cash sales each month are equal to approximately 30 percent of net sales. Collections on accounts
receivable are expected as follows:

60 percent collected during the month sale
40 percent collected in the following month
Total cash disbursements are estimated at $ 115,000 each month.

Required (use of spreadsheet software is recommended.)

1. Prepare a cash budget for each month and in total of six months of June 2008.
2. Will the company will able to pay the loan with interest and still maintain a cash balance of no less
than $60,000 on June 30? Explain
3. If actual sales are 10 percent lower than the forecast each month while cash expenses drop by only
$ 5,000 per month, what will happen to bryja's ability to pay off the loan and keep the cash
balance on a desired level?
4. If the sales and expenses fall as in Part (3) and collections patterns change to 40 percent collected
in the current month and 60 percent in the following month, what will happen to the
bryja's cash situation?