The ZYX Corporation Is Planning to Request a Line of Credit

Essay

The ZYX Corporation is planning to request a line of credit from its bank and wants to estimate its cash needs for the month of September. The following sales forecasts have been made for 2014:
July $500,000
August $400,000
September $300,000
October $200,000
November $100,000
Collection estimates were obtained from the credit collection department as follows: 20% collected within the month of sale; 70% collected the first month following the sale; and 10% collected the second month following the sale. Payments for labor and raw materials are typically made in the month in which these costs are incurred. Total labor and raw material costs each month are 50% of sales. General administrative expenses are $30,000 per month, lease payments are $10,000 per month, and depreciation charges are $20,000 per month. The corporation tax rate is 40%; however, no corporate taxes are paid in September. Prepare a cash budget for September.