Precision Machines is preparing a financial plan for the next six months to determine the financial needs of the company. The historical analysis of the company’s sales shows that the company’s total sales are 30% cash sales and 70% credit sales. Further analysis of credit sales shows that the company receives 50% of the credit sales one month after the sale and the remaining 50% in the second month after the sale. This means the cash collections from sales are 30% in the first month of the sale, 35% in the second month, and 35% in the third month. The materials purchased by the company amounts to 50% of the sales for the month. The company pays for the purchases one month after the initial purchase. The company likes to maintain a cash balance of $5,000. The cost of borrowing is 10%. The company plans to pay off the loan whenever there is a surplus and borrow when there is a deficit. The attached spreadsheet shows revenues (sales), expenses, capital expenditures, and other expenses for Precision Machines’ next six months. Using the information given on the spreadsheet, prepare a cash budget for January through June and determine the cash surplus, deficit, and the financing needs of the company.
Annual Cost of borrowing 10.00%
Minimum Cash Balance $5,000.00
Beginning Cash Balance $7,500.00 Revenues (Sales)
NOV$40,000.00 DEC$50,000.00 JAN$48,000.00 FEB$55,000.00 MARCH $35,000.00 APRIL$50,000.00 MAY$65,000.00 JUNE$40,000.00
Cash Collections
First Month (30%)
Second Month (35%)
Third Month (35%)
Total Collections
Cash Disbursements
Material Purchases Salaries JAN 6,000.00 FEB 6,000.00 MARCH 6,000.00 APRIL 6,000.00 MAY 6,000.00 JUNE 6,000.00
Wages JAN 3,000.00 FEB 3,500.00 MARCH 3,000.00 APRIL 3,200.00 MAY 3,500.00 JUNE 3,000.00
Other Expenses
Capital Expenditure MARCH 45,000.00
Dividends MARCH 1,000.00 JUNE 1,000.00
Interest Total Disbursements
Cash flows
Net cash flows
Cumulative cash flows
Minimum Cash Balance
Cash Surplus or (Deficit) Recommendations: