Basic Cash Budget
P 3. Felasco Nurseries Inc. has been in business for six years and has four divisions. Ethan Poulis, the corporation”s controller, has been asked to prepare a cash budget for the Southern Division for the first quarter. Projected data supporting this budget follow.
Sales (60% on credit) Purchases
| November | $160,000 | December | $ 86,800 |
| December | 200,000 | January | 124,700 |
| January | 120,000 | February | 99,440 |
| February | 160,000 | March | 104,800 |
| March | 140,000 |
Collection records of accounts receivable have shown that 30 percent of all credit sales are collected in the month of sale, 60 percent in the month following the sale, and 8 percent in the second month following the sale; 2 percent of the sales are uncollectible. All purchases are paid for in the month after the purchase. Salaries and wages are projected to be $25,200 in January, $33,200 in February, and $21,200 in March. Estimated monthly costs are utilities, $4,220; collection fees, $1,700; rent, $5,300; equipment depreciation, $5,440; supplies, $2,480; small tools, $3,140; and miscellaneous, $1,900.
Each of the corporation”s divisions maintains a $6,000 minimum cash balance. As of December 31, the Southern Division had a cash balance of $9,600.
Required
1. Prepare a monthly cash budget for Felasco Nurseries” Southern Divisiontor the first quarter.
2. Should Felasco Nurseries anticipate taking out a loan for the Southern Division during the quarter? If so, how much should it borrow, and when?
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