Coco Incorporated has estimated sales and purchase requirements for the last half of the coming year. Past experience indicates that it will collect 20 percent of its sales in the month of sale, 50 percent of the remainder one month after the sale, and the balance in the second month following the sale. Coco prefers to pay for half its purchases in the month of purchase and the other half the following month. Labor expenses for each month is expected to equal 5 percent of that month’s sales, with cash payment being made in the month in which the expense is incurred. Depreciation expenses is $5,000 per month: miscellaneous cash expenses are $4,000 per month and are paid in the month incurred. General and administrative expenses of $50,000 are recognized and paid monthly. A $60,000 truck is to be purchased in August and is to be depreciated on a straight-line basis over 10 years with no expected salvage value. The company also plans to pay $9,000 cash dividend to stockholders in July. The company feels that a minimum cash balance of $30,000 should be maintained. Any borrowing will cost 12 percent annually, with interest paid in the month following the month in which the funds are borrowed. Borrowing takes place at the beginning of the month in which the need for funds arises. For example, if during the month of July, the firm should need to borrow $24,000 to maintain its $30,000 desired minimum balance, then $24,000 will be taken out on July 1 with interest owed for the entire month of July. Interest for the month of July would then be paid on August 1. Sales and purchase estimates are shown in the following chart. Prepare a cash budget for the months of July and August (cash on hand June 30 was $30,000, whereas sales for May and June were $100,000 and purchases were $60,000 for each of these months). Month
Sales ($)
Purchases ($)
July
120,000
50,000
August
150,000
40,000
September
110,000
30,000