Ch 15: Assignment - Working Capital Management " Back to Assignment Keep the Highest: /23 Attempts: 6. Cash budget Mellon Company's financ Aa Aa cial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year. The following budget assumptions were used to construct the budget: s total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Mellon's sales are made on credit with terms of 2/ 10, net 30. Mellon's experie from customers who take advantage of the discount, 75% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 45% of Mellon's finished product. The purchases are month in advance of the sale, and Mellon pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $594 ($1,320 million x 0.45), and this amount would be paid in July. Other cash expenses include wages and salaries at 18% of sales, monthly rent of $48 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 million payment for a new plant must be made in September. is that 15% is collected . generally made one * . Assume that Mellon's targeted cash balance is $300, and the estimated cash on hand on July 1 is $305 Use the preceding information to fill in the missing amounts in the following cash budget. Mellon Company Cash Budget (S millions) uly August September October November December For the Six Months Ended December 31, Year 1 May June $1,260 $1.296 $1,176 $1,200 $1,236 567 Credit sales $1,140 $1,212 556 Credit purchases 540 V 594 $1,320 583 uly August September October November December Cash recelpts