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Cash Budget

Cash Budget. Used to determine monthly needs and surpluses for cash during the planning period Examines timing of cash inflows and outflows i.e. when checks are written and when deposits are made. Payments to suppliers are typically made some time after shipment is received.

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Cash Budget

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  1. Cash Budget • Used to determine monthly needs and surpluses for cash during the planning period • Examines timing of cash inflows and outflows i.e. when checks are written and when deposits are made. • Payments to suppliers are typically made some time after shipment is received. • Receipts from credit customers are received some time after sale is recorded.

  2. Cash Budget Problem Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet the bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey.

  3. Cash Budget Problem Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Collection of January Sales Nov Dec Jan Feb Mar Sales 130,000 125,000 120,000 260,000 140,000 36,000 120,000x.30

  4. Cash Budget Problem Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Collection of January Sales Nov Dec Jan Feb Mar Sales 130,000 125,000 120,000 260,000 140,000 36,000 60,000 120,000x.30 120,000x.50

  5. Cash Budget Problem Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Collection of January Sales Nov Dec Jan Feb Mar Sales 130,000 125,000 120,000 260,000 140,000 36,000 60,000 24,000 120,000x.30 120,000x.50 120,000x.20

  6. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine January Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 First Month (50%) 2nd Month (20%) Total Collections 120,000x.30

  7. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine January Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 First Month (50%) 62,500 2nd Month (20%) Total Collections 125,000x.50

  8. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine January Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 First Month (50%) 62,500 2nd Month (20%) 26,000 Total Collections 130,000x.20

  9. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine January Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 First Month (50%) 62,500 2nd Month (20%) 26,000 Total Collections 124,500

  10. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine February Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 First Month (50%) 62,500 2nd Month (20%) 26,000 Total Collections 124,500 260,000x.30

  11. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine February Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 First Month (50%) 62,500 60,000 2nd Month (20%) 26,000 Total Collections 124,500 120,000x.50

  12. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine February Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 First Month (50%) 62,500 60,000 2nd Month (20%) 26,000 25,000 Total Collections 124,500 125,000x.20

  13. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine February Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 First Month (50%) 62,500 60,000 2nd Month (20%) 26,000 25,000 Total Collections 124,500 163,000

  14. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine March Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 42,000 First Month (50%) 62,500 60,000 2nd Month (20%) 26,000 25,000 Total Collections 124,500 163,000 140,000x.30

  15. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine March Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 42,000 First Month (50%) 62,500 60,000 130,000 2nd Month (20%) 26,000 25,000 Total Collections 124,500 163,000 260,000x.50

  16. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine March Collections Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 42,000 First Month (50%) 62,500 60,000 130,000 2nd Month (20%) 26,000 25,000 24,000 Total Collections 124,500 163,000 120,000x.20

  17. Cash Budget Problem-- Determine Collections Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Cash Budget Halsey Enterprises November December January February March Sales 130,000 125,000 120,000 260,000 140,000 Collections: Month of Sale (30%) 36,000 78,000 42,000 First Month (50%) 62,500 60,000 130,000 2nd Month (20%) 26,000 25,000 24,000 Total Collections 124,500 163,000 196,000

  18. Cash Budget Problem Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Payments for January Purchases Nov Dec Jan Feb Mar Sales 130,000 125,000 120,000 260,000 140,000 90,000 75% of January Sales Purchased in November

  19. Cash Budget Problem Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Payments for January Purchases Nov Dec Jan Feb Mar Sales 130,000 125,000 120,000 260,000 140,000 90,000 75% of January Sales Purchased in November, Paid for in December 90,000

  20. Cash Budget Problem-- Determine Material Purchases Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine January Payments Cash Budget Halsey Enterprises 260,000x.75 November December January February March April Sales 130,000 125,000 120,000 260,000 140,000 140,000 Purchases 195,000 Payments 195,000

  21. Cash Budget Problem-- Determine Material Purchases Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine February Payments Cash Budget Halsey Enterprises 140,000x.75 November December January February March April Sales 130,000 125,000 120,000 260,000 140,000 140,000 Purchases 195,000 105,000 Payments 195,000 105,000

  22. Cash Budget Problem-- Determine Material Purchases Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Determine March Payments Cash Budget Halsey Enterprises 140,000x.75 November December January February March April Sales 130,000 125,000 120,000 260,000 140,000 140,000 Purchases 195,000 105,000 105,000 Payments 195,000 105,000 105,000

  23. Cash Budget Problem-- Determine Material Purchases Halsey Enterprises has projected its sales for the first four months of 1996 as follows: January $120,000 March $140,000 February $260,000 April $140,000 Halsey collects 30 percent of its sales in the month of sale, 50 percent in the month following the sale, and the remaining 20 percent two months following the sale. During November and December of 1995 Halsey’s sales were $130,000 and $125,000, respectively. Halsey purchases raw materials two months in advance of its sales equal to 75 percent of its final sales. The supplier is paid one month after delivery. In addition, Halsey pays $2,000 per month for rent and $12,000 each month for other expenditures. Taxes are due in March and amount to $10,000. As of December 31, 1995 the company’s cash balance was $28,000; a minimum balance of $25,000 must be maintained to meet bank’s line of credit agreement. Halsey can borrow short term from its bank at a cost of 1/2% per month. They have a policy to repay short term debt in any month its cash balance exceeds the minimum desired balance of $25,000. Prepare a cash budget for Halsey. Cash Budget Halsey Enterprises November December January February March April Sales 130,000 125,000 120,000 260,000 140,000 140,000 Purchases 195,000 105,000 105,000 Payments 195,000 105,000 105,000

  24. Cash Budget Problem-- Cash Inflows & Outflows Cash Budget Halsey Enterprises January February March Cash Collections 124,500 163,000 196,000 Material Payments 195,000 105,000 105,000 Summary of Previous Sheets

  25. Cash Budget Problem-- Cash Inflows & Outflows Cash Budget Halsey Enterprises January February March Cash Collections 124,500 163,000 196,000 Material Payments 195,000 105,000 105,000 Other Payments: Rent 2,000 2,000 2,000 Other Expenses 12,000 12,000 12,000 Tax Payments 0 0 10,000 Remaining Cash Outflows

  26. Cash Budget Problem-- Cash Inflows & Outflows Cash Budget Halsey Enterprises January February March Cash Collections 124,500 163,000 196,000 Material Payments 195,000 105,000 105,000 Other Payments: Rent 2,000 2,000 2,000 Other Expenses 12,000 12,000 12,000 Tax Payments 0 0 10,000 Net Monthly Change (84,500) 44,000 67,000

  27. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 Ending Cash (No Borrow) Needed (Borrowing) Loan Repayment Interest Cost Ending Cash Balance Cumulative Borrowing

  28. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 Ending Cash (No Borrow) (56,500) Needed (Borrowing) Loan Repayment Interest Cost Ending Cash Balance Cumulative Borrowing

  29. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 Ending Cash (No Borrow) (56,500) Needed (Borrowing) Loan Repayment Interest Cost Ending Cash Balance 25,000 Cumulative Borrowing Target Ending Balance

  30. Borrowing Required to cover Minimum Balance and Deficit 56,500+25,000 Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 Ending Cash (No Borrow) (56,500) Needed (Borrowing) 81,500 Loan Repayment Interest Cost Ending Cash Balance 25,000 Cumulative Borrowing

  31. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 Ending Cash (No Borrow) (56,500) Needed (Borrowing) 81,500 Loan Repayment 0 Interest Cost 0 Ending Cash Balance 25,000 Cumulative Borrowing 81,500

  32. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,00025,000 Ending Cash (No Borrow) (56,500) 69,000 Needed (Borrowing) 81,500 Loan Repayment 0 Interest Cost 0 Ending Cash Balance 25,000 Cumulative Borrowing 81,500

  33. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 Needed (Borrowing) 81,500 0 Loan Repayment 0 Interest Cost 0 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 Target Ending Balance

  34. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 Needed (Borrowing) 81,500 0 Loan Repayment 0 Interest Cost 0 408 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 Interest Incurred on Prior Month Borrowing 81,500 x .005

  35. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 Needed (Borrowing) 81,500 0 Loan Repayment 0 43,592 Interest Cost 0 408 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 Amount that can be repaid from monthly surplus 69,000 - 408 - 25,000

  36. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 Needed (Borrowing) 81,500 0 Loan Repayment 0 43,592 Interest Cost 0 408 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 37,908 New Loan Balance 81,500 - 43,592

  37. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 92,000 Needed (Borrowing) 81,500 0 Loan Repayment 0 43,592 Interest Cost 0 408 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 37,908

  38. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 92,000 Needed (Borrowing) 81,500 0 0 Loan Repayment 0 43,592 Interest Cost 0 408 190 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 37,908 Interest Incurred on Prior Month Borrowing 37,908 x .005

  39. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 92,000 Needed (Borrowing) 81,500 0 0 Loan Repayment 0 43,592 37,908 Interest Cost 0 408 190 Ending Cash Balance 25,000 25,000 Cumulative Borrowing 81,500 37,908 Repay Outstanding Loan Balance

  40. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 92,000 Needed (Borrowing) 81,500 0 0 Loan Repayment 0 43,592 37,908 Interest Cost 0 408 190 Ending Cash Balance 25,000 25,000 53,902 Cumulative Borrowing 81,500 37,908 0 Ending Cash Balance 92,000-37,908-190

  41. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 92,000 Needed (Borrowing) 81,500 0 0 Loan Repayment 0 43,592 37,908 Interest Cost 0 408 190 Ending Cash Balance 25,000 25,000 53,902 Cumulative Borrowing 81,500 37,908 0 Ending Cash Balance $28,902 Surplus

  42. Cash Budget Problem-- Analysis of Borrowing Needs Cash Budget Halsey Enterprises January February March Net Monthly Change (84,500) 44,000 67,000 Beginning Cash Balance 28,000 25,000 25,000 Ending Cash (No Borrow) (56,500) 69,000 92,000 Needed (Borrowing) 81,500 0 0 Loan Repayment 0 43,592 37,908 Interest Cost 0 408 190 Ending Cash Balance 25,000 25,000 53,902 Cumulative Borrowing 81,500 37,908 0 Halsey needs to raise $81,500 in short term debt in January, would probably take out a short term bank loan. In March has a 28,902 surplus, would probably invest in marketable securities at this point in time

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