Bombs Away Video Games Corporation has forecasted the following monthly sales:

January	\(100,000
February	\)93,000
March	\(25,000
April	\)25,000
May	\(20,000
June	\)35,000
July	\(45,000
August	\)45,000
September	\(55,000
October	\)85,000
November	\(105,000
December	\)123,000
Total annual sales	\(756,000

Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month’s production is equal to annual sales (in units) divided by 12.

Of each month’s sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.

d. Prepare a monthly 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 \)5,000, which is also the minimum desired.

Step by step solution

01

Meaning of cash budget

The cash budget is prepared to manage the organization’s cash balance. This budget evaluates the cash inflows and outflows of an organization for a specified period.

02

Cash budget

	January	February	March	April	May	June
Net cash flow	$29,800	$27,700	$2,400	($45,200)	($46,700)	($45,700)
Beginning cash	$5,000	$34,800	$62,500	$64,900	$19,700	$5,000
Cumulative cash balance	$34,800	$62,500	$64,900	$19,700	($27,000)	($40,700)
Monthly loan (repayment)	$	$0	$0	$0	$32,000	$45,700
Cumulative loan	$0	$0	$0	$0	$32,000	$77,700
Ending cash balance	$34,800	$62,500	$64,900	$19,700	$5,000	$5,000

	July	August	September	October	November	December
Net cash flow	($32,200)	($25,200)	($22,200)	($6,200)	$20,800	$40,200
Beginning cash	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000
Cumulative cash balance	($27,200)	($20,200)	($17,200)	($1,200)	$25,800	$45,200
Monthly loan (repayment)	$32,200	$25,200	$22,200	$6,200	($20,800)	($40,200)
Cumulative loan ending cash balance	$109,900	$135,100	$157,300	$163,500	$142,700	$102,500
Ending cash balance	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000

03

Working notes

1. $\mathit{N}\mathit{e}\mathit{t}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{f}\mathit{l}\mathit{o}\mathit{w}\mathbf{=}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{r}\mathit{e}\mathit{c}\mathit{e}\mathit{i}\mathit{p}\mathit{t}\mathit{s}\mathbf{-}\mathit{T}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{p}\mathit{a}\mathit{y}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathit{s}$

2.$\mathit{C}\mathit{u}\mathit{m}\mathit{m}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{i}\mathit{v}\mathit{e}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{b}\mathit{a}\mathit{l}\mathit{a}\mathit{n}\mathit{c}\mathit{e}\mathbf{=}\mathit{N}\mathit{e}\mathit{t}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{f}\mathit{l}\mathit{o}\mathit{w}\mathit{s}\mathbf{+}\mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{c}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{b}\mathit{a}\mathit{l}\mathit{a}\mathit{n}\mathit{c}\mathit{e}$

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