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RRS CASH BUDGET FOR JANUARY AND FEBRUARY

November December January February March April Sales

(1) Sales (Gross) $71,218 $68,212.00 $65,213.00 $52,475.00 $42,909 $30,524

Collections:

(2) During Month Of Sale

(0.2)(0.98)(Months Sales) 12,781.75 10,285.10 (

3) During First Month After Sale

0.7(Previous Months Sales) 47,748.40 4 5,649.10

(4) During Second Month After Sale

0.1(Sales 2 Months Ago) 7,121.80 6,821.20

(5) Total Collections (Lines 2 + 3 + 4) $67,651.95 $62,755.40

Purchases:

(6) 0.85(Forecasted Sales

2 Months From Now) $44,603.75 $36,472.65 $25,945.40

Payments

(7) Payments For Purchases 44,603.75 36,472.65

(8) Wages And Salaries 6,690.56 5,470.90

(9) Rent 2,500.00 2,500.00

(10) Taxes

(11) Total Payments $53,794.31 $44,443.55

Net Cash Flows

(12) Cash At Beginning Of Forecast $ 3,000.00

(13) Net Cash Flow: Collections Payments $13,857.64 $18,311.85

(14) Cumulative NCF (Prior mos. + this mos. NCF) 16,857.64 35,169.49

Cash Surplus (or Loan Requirement)

(15) Target Cash Balance 1,500.00 1,500.00

(16) Surplus Cash Or Loan Needed $15,357.64 $33,669.49

PLEASE SHOW WORK

9. If the company reduces its inventory without adversely affecting sales, what effect should this have on the companys cash position (1) in the short run and (2) in the long run? Explain in terms of the cash budget and the balance sheet.

10. Does RR face any risks if it tightens its credit policy?

11. Assume that RR purchases $300,000 (net of discounts) of materials on terms of 1/10, net 30, but that it can get away with paying on the 35th day if it chooses not to take discounts. How much free trade credit can the company get from its equipment supplier, how much costly trade credit can it get, and what is the percentage cost of the costly credit? Should RR take discounts?

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