CHAPTER 15 UHFM 7TH EDITION

PROBLEM 2 Must show wor
James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank.
The company has produced sales estimates, and these appear in the worksheet below. Collection
estimates are as follows: 10 percent within the month of sale, 75 percent in the month following
the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also
appear in the worksheet below. Payments for labor and supplies are typically made during the
month following the one in which these costs have been incurred. General and administrative
salaries will amount to approximately $27,000 a month; lease payments under long-term lease
contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous
expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September
and December; and a progress payment of $180,000 on a new building must be paid in October.
Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be
maintained throughout the cash budget period. What loan will be the company require in
October?
ANSWER
May	June	July	August	September	October	November	December	January
Collections worksheet:
Billed charges	$180,000	$180,000	$360,000	$540,000	$720,000	$360,000	$360,000	$90,000	$180,000
Collections
Within 30 days
30-60 days
60-90 days
Total collections
Supplies worksheet:
Amount of labor and supplies	$90,000	$90,000	$126,000	$882,000	$306,000	$234,000	$162,000	$90,000
Payments made for labor and supplies
Net cash gain (loss):
Total collections
Total purchases
General and administrative salaries
Lease payments
Miscellaneous expenses
Taxes
Progress payment
Total payments
Net cash gain/loss
Borrowing/surplus summary:
Cash at beginning with no borrowing
Cash at end with no borrowing
Target cash balance (given)
Cumulative surplus cash / loan balance