Basic Cash Budget
P 3. Felasco Nurseries Inc. has been in business for six years and has four divisions. Ethan Poulis, the corporation’s controller, has been asked to prepare a cash budget for the Southern Division for the first quarter. Projected data supporting this budget follow.
Sales (60% on credit) Purchases
Collection records of accounts receivable have shown that 30 percent of all credit sales are collected in the month of sale, 60 percent in the month following the sale, and 8 percent in the second month following the sale; 2 percent of the sales are uncollectible. All purchases are paid for in the month after the purchase. Salaries and wages are projected to be $25,200 in January, $33,200 in February, and $21,200 in March. Estimated monthly costs are utilities, $4,220; collection fees, $1,700; rent, $5,300; equipment depreciation, $5,440; supplies, $2,480; small tools, $3,140; and miscellaneous, $1,900.
Each of the corporation’s divisions maintains a $6,000 minimum cash balance. As of December 31, the Southern Division had a cash balance of $9,600.
1. Prepare a monthly cash budget for Felasco Nurseries’ Southern Divisiontor the first quarter.
2. Should Felasco Nurseries anticipate taking out a loan for the Southern Division during the quarter? If so, how much should it borrow, and when?