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Esquire Products Inc. expects the following monthly sales:

January

\(28,000

February

\)19,000

March

\(12,000

April

\)14,000

May

\(8,000

June

\)6,000

July

\(22,000

August

\)26,000

September

\(29,000

October

\)34,000

November

\(42,000

December

\)24,000

Total annual sales

\(264,000

Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.

d. Construct a cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is \)3,000, which is also the minimum desired.

Short Answer

Expert verified

The budgeted cash for January is $7,800 and December is $43,800.

Step by step solution

01

Importance of cash budget

The cash budget is important to evaluate the operational and financial stability of the organization. This budget also helps in maintaining the organization’s liquidity.

02

Cash budget

January

February

March

April

May

June

Net cash flow

$4,800

$6,000

($2,200)

($5,600)

($6,800)

($11,200)

Beginning cash

$3,000

$7,800

$13,800

$11,600

$6,000

$3,000

Cumulative cash balance

$7,800

$13,800

$11,600

$6,000

($800)

($8,200)

Monthly loan (repayment)

$0

$0

$1

$0

$3,800

$11,200

Cumulative loan

$0

$0

$0

$0

$3,800

$15,000

Ending cash balance

$7,800

$13,800

$11,600

$6,000

$3,000

$3,000

July

August

September

October

November

December

Net cash flow

($6,000)

$5,200

$8,800

$12,600

$18,800

$16,400

Beginning cash

$3,000

$3,000

$3,000

$3,000

$8,600

$27,400

Cumulative cash balance

($3,000)

$8,200

$11,800

$15,600

$27,400

$43,800

Monthly loan (repayment)

$6,000

($5,200)

($8,800)

($7,000)

$0

$0

Cumulative loan ending cash balance

$21,000

$15,800

$7,000

$0

$0

$0

Ending cash balance

$3,000

$3,000

$3,000

$8,600

$27,400

$43,800

03

Working notes

1. NetCahflow=Totalcashreceipts-Totalcashpayments

2.Cummulativecashbalance=Netcashflows+Beginningcashbalance

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