Question: Precision Machines is preparing a financial plan for the next six months to determine the financial needs of the company. The historical analysis of the
Precision Machines is preparing a financial plan for the next six months to determine the financial needs of the company. The historical analysis of the companys sales shows that the companys total sales are 30% cash sales and 70% credit sales. Further analysis of credit sales shows that the company receives 50% of the credit sales one month after the sale and the remaining 50% in the second month after the sale. This means the cash collections from sales are 30% in the first month of the sale, 35% in the second month, and 35% in the third month.
The materials purchased by the company amounts to 50% of the sales for the month. The company pays for the purchases one month after the initial purchase. The company likes to maintain a cash balance of $5,000. The cost of borrowing is 10%. The company plans to pay off the loan whenever there is a surplus and borrow when there is a deficit.
The attached spreadsheet shows revenues (sales), expenses, capital expenditures, and other expenses for Precision Machines next six months. Using the information given on the spreadsheet, prepare a cash budget for January through June and determine the cash surplus, deficit, and the financing needs of the company.
| Precision Machines | |||||||||
| Student Note: Fill in the light yellow cells | |||||||||
| Data: | |||||||||
| November | December | January | February | March | April | May | June | ||
| Annual Cost of borrowing | 10.00% | ||||||||
| Minimum Cash Balance | $5,000.00 | ||||||||
| Beginning Cash Balance | $7,500.00 | ||||||||
| Revenues (Sales) | $40,000.00 | $50,000.00 | $48,000.00 | $55,000.00 | $35,000.00 | $50,000.00 | $65,000.00 | $40,000.00 | |
| Cash Collections | November | December | January | February | March | April | May | June | |
| First Month (30%) | |||||||||
| Second Month (35%) | |||||||||
| Third Month (35%) | |||||||||
| Total Collections | |||||||||
| Cash Disbursements | |||||||||
| Material Purchases | |||||||||
| Salaries | 6,000.00 | 6,000.00 | 6,000.00 | 6,000.00 | 6,000.00 | 6,000.00 | |||
| Wages | 3,000.00 | 3,500.00 | 3,000.00 | 3,200.00 | 3,500.00 | 3,000.00 | |||
| Other Expenses | |||||||||
| Capital Expenditure | 45,000.00 | ||||||||
| Dividends | 1,000.00 | 1,000.00 | |||||||
| Interest | |||||||||
| Total Disbursements | |||||||||
| Cash flows | |||||||||
| Net cash flows | |||||||||
| Cumulative cash flows | |||||||||
| Minimum Cash Balance | |||||||||
| Cash Surplus or (Deficit) | |||||||||
| Recommendations: | |||||||||
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