It is July 2020.  You are a budget analyst for ACME Manufacturing Inc.  ACME makes a variety of large metal seasonal decorations, such as snowflakes, reindeer, snowmen etc., used in shopping malls and municipal parks.  Create a cash budget for the months July through December using the sales estimates and other information about the company given below.  All numbers are in thousands. A form is provided for your cash budget. Complete the cash budget for the remainder of 2020 (July through December) on the form provided. What will the Accounts Receivable balance be at the end of 2020? Assume everything occurs exactly as the cash budget predicts, and ACME gets the loans forecast on the cash budget.  Given the minimum cash balance of $100 is ACME assured that there will never be a cash shortfall at anytime during the forecast period of July through December?  Explain why or why not. Why must this profitable company borrow money for a few months each year?                                                                                                                  ACME Sales Forecasts Month                            Sales ($ 000s) May 2020                                       200 June 2020                                       300 July 2020                                        700 August 2020                                   900 September 2020                           1100 October 2020                                  900 November 2020                              600 December 2020                              300 January 2021                                  200                                                                                                                  Notes on collection and payments patterns for ACME Manufacturing. The Company offers customers a 5% discount if they pay at the time of sale. About 20% of the customers take advantage of this discount. This means that for every $100 of merchandise sold ACME collects $19.00 in the sale month.  This represents 20% of the sales being sold at a 5% discount or at 95% of full price ($100*0.20*0.95 = $19.00). Credit sales: 50% of each month’s sales are collected one month after the sale and 30% are collected two months after the sale. Raw materials are 60% of sales. Materials are ordered two months in advance and paid for the following month.  So, materials for July are ordered in May and paid for in June. Manufacturing labor is 20% of sales and wages are paid for in the month of the sales. Thus, labor in July will be 20% of July sales (0.20*$700 = $140) and is paid for in July. Managerial salaries are $40 per month. Rent and lease payments total $30 per month. Tax payments of $70 will be made in September and December. The company will spend $250 for a new fabricating machine in August. The beginning cash balance in July is $200 and the minimum cash balance the company needs is $100. At the beginning of July there is no loan outstanding.  Cash surplus is any ending cash balance greater than the $100 required minimum. Please use the form on the next page for your cash budget.       Month May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Sales ($000s) 200 300 700 900 1100 900 600 300 200 Cash receipts                   30-Day                   60-Day                   Total Receipts                                       Materials                   Labor                   Salaries     40 40           Rent/Leases     30 30           Taxes                   New machine       250           Total expenditures                                       Change in cash                   Beginning cash     200             End cash wo/loan                   Loan                   End cash w/loan                                       Loan repayment                   Cumulative loan                                       Cash surplus

It is July 2020.  You are a budget analyst for ACME Manufacturing Inc.  ACME makes a variety of large metal seasonal decorations, such as snowflakes, reindeer, snowmen etc., used in shopping malls and municipal parks.  Create a cash budget for the months July through December using the sales estimates and other information about the company given below.  All numbers are in thousands. A form is provided for your cash budget.

1. Complete the cash budget for the remainder of 2020 (July through December) on the form provided.
2. What will the Accounts Receivable balance be at the end of 2020?
3. Assume everything occurs exactly as the cash budget predicts, and ACME gets the loans forecast on the cash budget.  Given the minimum cash balance of $100 is ACME assured that there will never be a cash shortfall at anytime during the forecast period of July through December?  Explain why or why not.
4. Why must this profitable company borrow money for a few months each year?

ACME Sales Forecasts

Month                            Sales ($ 000s)

May 2020                                       200

June 2020                                       300

July 2020                                        700

August 2020                                   900

September 2020                           1100

October 2020                                  900

November 2020                              600

December 2020                              300

January 2021                                  200

Notes on collection and payments patterns for ACME Manufacturing.

• The Company offers customers a 5% discount if they pay at the time of sale. About 20% of the customers take advantage of this discount. This means that for every $100 of merchandise sold ACME collects $19.00 in the sale month.  This represents 20% of the sales being sold at a 5% discount or at 95% of full price ($100*0.20*0.95 = $19.00).
• Credit sales: 50% of each month’s sales are collected one month after the sale and 30% are collected two months after the sale.
• Raw materials are 60% of sales. Materials are ordered two months in advance and paid for the following month.  So, materials for July are ordered in May and paid for in June.
• Manufacturing labor is 20% of sales and wages are paid for in the month of the sales. Thus, labor in July will be 20% of July sales (0.20*$700 = $140) and is paid for in July.
• Managerial salaries are $40 per month. Rent and lease payments total $30 per month.
• Tax payments of $70 will be made in September and December.
• The company will spend $250 for a new fabricating machine in August.
• The beginning cash balance in July is $200 and the minimum cash balance the company needs is $100. At the beginning of July there is no loan outstanding.  Cash surplus is any ending cash balance greater than the $100 required minimum.

Please use the form on the next page for your cash budget.