Instructions (answer using the RELEVANT INFO section below)

a.

Determine the budgeted cash disbursements during the month of February.

b.

What are the budgeted cash collections during the month of January?

c.

What is the budgeted number of units of inventory to be purchased during the month of March?

d.

Why is it important to understand cash flow as an entrepreneurial person - whether working for yourself or someone else? Is it more or less important than financial accounting statements for an entrepreneurial person, and why?

e.

How does debt work into a cash budget?

RELEVANT INFO

Balances at Jan 1 are expected as follows:

Cash $11,000

Inventories $618,800

A/R $832,000

A/P $266,110

The budget is to be based on the following assumptions:

1) each month's sales are billed on the last day of the month

2) customers are allowed a 3% discount if their payment is made within 10 days

3) the company collects 60% of the billings within the discount period, 25% by the end of the month, 9% by the end of the second month and 6% are uncollectible

4) the company pays 54% of all materials purchases and the selling general and admin expenses in the month purchased, and the balance in the following month

5) cost of each inventory unit is $20

6) selling general and administrative expenses, of which $2000 is depreciation, are equal to 15% of the current month's sales

7) Actual and forecasted sales follow below

Month Sales Units

November $708,00023,600

December $726,00024,200

January $714,00023,800

February $684,00022,800

March $720,00024,000

April $732,00024,400