Lewis Printing has projected its sales for the first 8 months of 2019 as shown in the

Question:

Lewis Printing has projected its sales for the first 8 months of 2019 as shown in the table below.

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Lewis collects 20 percent of its sales in the month of the sale, 50 percent in the month following the sale, and the remaining 30 percent 2 months following the sale. During November and December of 2018, Lewis’s sales were $$220,000$ and $$175,000,$ respectively.
Lewis purchases raw materials 2 months in advance of its sales.
These purchases are equal to 65 percent of its final sales. The supplier is paid 1 month after delivery. Thus, purchases for April sales are made in February and payment is made in March.
In addition, rent expense is $$10,000$ per month and other expenses total $$20,000$ a month. Beginning in March quarterly tax prepayments of $$22,500$ are made. The company’s cash balance as of December 31, 2018, was $$28,000;$ a minimum balance of $$25,000$ must be maintained at all times to satisfy the firm’s bank line of credit agreement. Lewis has arranged with its bank for short-term credit at an interest rate of 12 percent per annum (1 percent per month) to be paid monthly. Borrowing to meet estimated monthly cash needs takes place at the end of the month, and interest is not paid until the end of the following month. Consequently, if the firm needed to borrow $$50,000$ during April, then it would pay $$500$ (= 0.01 × $$50,000)$ in interest during May. Finally, Lewis follows a policy of repaying its outstanding short-term debt in any month in which its cash balance exceeds the minimum desired balance of $$25,000$.

a. Lewis needs to know what its cash requirements will be for the next 6 months so that he can renegotiate the terms of his short-term credit agreement with his bank, if necessary. To address this problem, prepare a 6-month cash budget. Also recalculate the budget for a ±20 percent variation in its monthly sales.

b. Lewis has a $$20,000$ note due at the end of June. Will the firm have sufficient cash to repay the loan?

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