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Cooper Company’s management team is preparing a cash budget for the coming quarter. The following budgeted information is under review.  January February MarchRevenue $700,000 $800,000 $500,000Inventory purchases 350,000 425,000 225,000Other expenses 150,000 175,000 175,000 The company expects to collect 40% of its monthly sales in the month of sale and 60% in the following month. 50% of inventory purchases are paid in the month of purchase, and the other 50% in the following month. All payments for other expenses are made in the month incurred.Cooper forecasts the following account balances at the beginning of the quarter.Cash $100,000Accounts receivable 300,000Accounts payable (Inventory) 500,000 Given the above information, the projected change in cash during the coming quarter will be

Question

Cooper Company’s management team is preparing a cash budget for the coming quarter. The following budgeted information is under review.  January February MarchRevenue 700,000700,000 800,000 500,000Inventorypurchases350,000425,000225,000Otherexpenses150,000175,000175,000 Thecompanyexpectstocollect40500,000Inventory purchases 350,000 425,000 225,000Other expenses 150,000 175,000 175,000 The company expects to collect 40% of its monthly sales in the month of sale and 60% in the following month. 50% of inventory purchases are paid in the month of purchase, and the other 50% in the following month. All payments for other expenses are made in the month incurred.Cooper forecasts the following account balances at the beginning of the quarter.Cash 100,000Accounts receivable 300,000Accounts payable (Inventory) 500,000 Given the above information, the projected change in cash during the coming quarter will be

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Solution

To calculate the projected change in cash during the coming quarter, we need to consider the cash inflows and outflows for each month.

First, let's calculate the cash inflows:

  • January: 40% of January sales + 60% of December sales (which is the accounts receivable balance at the beginning of the quarter) = 0.4 * 700,000+0.6∗700,000 + 0.6 * 300,000 = 280,000+280,000 + 180,000 = $460,000

  • February: 40% of February sales + 60% of January sales = 0.4 * 800,000+0.6∗800,000 + 0.6 * 700,000 = 320,000+320,000 + 420,000 = $740,000

  • March: 40% of March sales + 60% of February sales = 0.4 * 500,000+0.6∗500,000 + 0.6 * 800,000 = 200,000+200,000 + 480,000 = $680,000

Next, let's calculate the cash outflows:

  • January: 50% of January inventory purchases + 50% of December inventory purchases (which is the accounts payable balance at the beginning of the quarter) + January other expenses = 0.5 * 350,000+0.5∗350,000 + 0.5 * 500,000 + 150,000=150,000 = 175,000 + 250,000+250,000 + 150,000 = $575,000

  • February: 50% of February inventory purchases + 50% of January inventory purchases + February other expenses = 0.5 * 425,000+0.5∗425,000 + 0.5 * 350,000 + 175,000=175,000 = 212,500 + 175,000+175,000 + 175,000 = $562,500

  • March: 50% of March inventory purchases + 50% of February inventory purchases + March other expenses = 0.5 * 225,000+0.5∗225,000 + 0.5 * 425,000 + 175,000=175,000 = 112,500 + 212,500+212,500 + 175,000 = $500,000

Finally, let's calculate the change in cash for each month and the total for the quarter:

  • January: 460,000(inflows)−460,000 (inflows) - 575,000 (outflows) = -$115,000
  • February: 740,000−740,000 - 562,500 = $177,500
  • March: 680,000−680,000 - 500,000 = $180,000

Total change in cash for the quarter: -115,000+115,000 + 177,500 + 180,000=180,000 = 242,500

So, the projected change in cash during the coming quarter is $242,500.

This problem has been solved

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