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Problem 2 - Cash Budget

Bell Ball Bearings, Inc. has provided you with the following information for the preparation of a quarterly cash budget for January, February, and March. Prepare a cash budget for these months. You goal is to determine if the company will require financing or have excess funds for this period.

Month Sales

November $2,000,000

December 2,500,000

January 2,500,000

February 3,000,000

March 3,500,000

April 3,000,000

• The firm collects 50 percent of sales for cash, 30 percent of sales are collected one month later, and 20 percent of sales are collected two months later.

• Interest income of $25,000 on marketable securities will be received in March.

• The firm pays cash for all its purchases in 30 days. Purchases equal 75 percent of the following month's projected sales.

• Salaries and wages amount to 8 percent of the previous month's sales.

• Rent payments of $40,000 are due each month.

• The firm plans to purchase a new diesel truck costing $120,000 in February.

• The firm plans to pay a quarterly dividend, totaling $30,000 in March.

• The firm plans to pay off a loan of $100,000 from the bank in January.

• The firm has a beginning cash balance of $75,000 in January and maintains a minimum cash balance of $50,000.