Holcomb Company expects to have a cash balance of $43,000 on January 1, 2010. These are the relevant monthly budget data for the first two months of 2010.
1) Collections from customers: January $80,000, February $146,000
2) Payments to suppliers: January $40,000, February $65,000
3) Wages: January $34,000, February $40,000. Wages are paid in the month they are incurred.
4) Administrative expenses: January $21,000, February $31,000. These costs include depreciation of $1,000 per month. All other costs are paid as incurred.
5) Selling expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred.
6) Sales of short-term investments in January are expected to realize $12,000 in cash. Holcomb has a line of credit at a local bank that enables it to borrow up to $40,000. The company wants to maintain a minimum monthly cash balance of $25,000.
Instructions:
Prepare a cash budget for January and February.