Reference no: EM132544940

Cara Industries, a defense contractor, is developing a cash budget for October, November, and December. Coulson's sales in August and September were $300,000 and $400,000, respectively. In addition, the following information is given: Sales: Sales of $300,000, $250,000, and $200,000 have been forecast for October, November, and December, respectively. Historically, 20% of the firm's sales have been for cash, 50% have generated accounts receivable collected after 1 month, and the remaining 30% have generated accounts receivable collected after 2 months. Baddebt expenses (uncollectible accounts) have been negligible.

Dividends: In December, the firm will receive a $20,000 cash dividend from stock in a subsidiary. Purchases: The firm's purchases represent 75% of sales. Of this amount, 10% is paid in cash, 70% is paid in the month immediately following the month of purchase, and the remaining 20% is paid 2 months following the month of purchase.

Rent payments: Rent of $5,000 will be paid each month.

Wages and salaries: Fixed salary cost for the year is $96,000, or $8,000 per month. In addition, wages are estimated as 10% of monthly sales.

Tax payments: Taxes of $25,000 must be paid in December.

Fixed-asset outlays: New machinery costing $130,000 will be purchased and paid for in November. Interest payments: An interest payment of $10,000 is due in December.

Cash dividend payments: Cash dividends of $20,000 will be paid in October.

Principal payments (loans): A$20,000 principal payment is due in December.

Repurchases or retirements of stock: No repurchase or retirement of stock is expected between October and December.

Question 1: At the end of September, Coulson's cash balance was $60,000. The company wants to maintain a target cash balance of $30,000 at the end of every month. Construct a monthly cash budget for the company from October till December.