DISCUSSION – CASH BUDGET

1. Terrel Manufacturing expects stable sales through the summer months of June, July, and
August of $500,000 per month. The firm will make purchases of $350,000 per month
during these months. Wages and salaries are estimated at $60,000 per month plus 7
percent of sales. The firm must make a principal and interest payment on an outstanding
loan in June of $100,000. The firm plans a purchase of a fixed asset costing $75,000 in
July. The second quarter tax payment of $20,000 is also due in June. All sales are for
cash.
(a) Construct a cash budget for June, July, and August, assuming the firm has a
beginning cash balance of $100,000 in June.
(b) The sales projections may not be accurate due to the lack of experience by a
newly-hired sales manager. If the sales manager believes the most optimistic
and pessimistic estimates of sales are $600,000 and $400,000, respectively,
what are the monthly net cash flows and required financing or excess cash balances?
2. The cash budget for Parker Process Meats, Inc. for the fourth quarter of 2004 is given
below:

Parker Process Meats, Inc.

Cash Budget for the Three Months Ending December 31, 2004
Cash receipts Oct. Nov. Dec.
Total collections $31,050 $4,050 $49,950
Cash disbursements:
Purchases 44,550 48,600 52,650
Wages and salaries 7,425 7,425 7,425
Other expenses 2,025 1,350 675
Taxes 17,415
Total disbursements $54,000 $57,375 $78,165
The expected sales for the period are as follows:
Oct.: $86,400 Nov.: $91,800 Dec.: $83,700
The total depreciation expense for the period will be $8,775. An interest payment on
outstanding debt of $15,000 will be made in December. Using the information given,
construct a pro forma income statement for the final quarter of 2004 for Parker.