A firm expects to achieve the following level of sales, to make the following purchases of raw materials, and to make the following payments for indirect expenses for the first 4 months of the year.  All sales and purchases of raw materials are on credit, and are paid for in the following month.  Indirect expenses are paid for in the month they are incurred.

Sales in December totalled $75 and purchases of raw materials in December totalled $54.  The opening cash balance at the beginning of January was $117.  What is the budgeted closing cash balance at the end of April?


 	Jan	Feb	Mar	Apr
Sales	72	70	76	80
Purchases of raw materials	51	53	60	55
Indirect expenses	15	18	16	16
Question 2Answer

a.
$130

b.
$127

c.
$129

d.
$132

To determine the budgeted closing cash balance at the end of April, we need to follow a step-by-step approach, considering both cash inflows (collections from sales) and cash outflows (payments for raw materials and indirect expenses).

Here’s the process:

### 1. **Opening Balance in January:**
   - The cash balance at the beginning of January is **$117**.

### 2. **Collections from Sales:**
   Since all sales are made on credit, collections for a given month’s sales happen in the following month. Therefore, the sales collections for each month will be based on the previous month's sales:
   
   - January: Collect December sales = **$75**
   - February: Collect January sales = **$72**
   - March: Collect February sales = **$70**
   - April: Collect March sales = **$76**
   - May (for April sales): Will not affect the April closing balance, so it’s not considered.

### 3. **Payments for Raw Materials:**
   All purchases are also made on credit, and payments for raw materials are made in the following month. Therefore, the payments for each month will be based on the previous month's purchases:
   
   - January: Pay December purchases = **$54**
   - February: Pay January purchases = **$51**
   - March: Pay February purchases = **$53**
   - April: Pay March purchases = **$60**

### 4. **Payments for Indirect Expenses:**
   Indirect expenses are paid in the month they are incurred:
   
   - January: **$15**
   - February: **$18**
   - March: **$16**
   - April: **$16**

### 5. **Cash Flow Calculations for Each Month:**

#### **January:**
   - Opening cash balance: **$117**
   - Inflows (December sales): **+75**
   - Outflows (December purchases + January indirect expenses): **−54 − 15 = −69**
   - Closing balance for January:  
     $117 + 75 - 69 = 123$

#### **February:**
   - Opening cash balance: **$123**
   - Inflows (January sales): **+72**
   - Outflows (January purchases + February indirect expenses): **−51 − 18 = −69**
   - Closing balance for February:  
     $123 + 72 - 69 = 126$

#### **March:**
   - Opening cash balance: **$126**
   - Inflows (February sales): **+70**
   - Outflows (February purchases + March indirect expenses): **−53 − 16 = −69**
   - Closing balance for March:  
     $126 + 70 - 69 = 127$

#### **April:**
   - Opening cash balance: **$127**
   - Inflows (March sales): **+76**
   - Outflows (March purchases + April indirect expenses): **−60 − 16 = −76**
   - Closing balance for April:  
     $127 + 76 - 76 = 127$

### Conclusion:
The budgeted closing cash balance at the end of April is **$127**.

The correct answer is **b. $127**.

---

Do you have any questions or would you like further details on any step?

Here are 5 related questions to expand your understanding:
1. How would the result change if indirect expenses were also paid on credit?
2. What would happen if collections were delayed by two months instead of one?
3. How does a change in opening balance affect the final closing balance?
4. How would increased indirect expenses affect the cash flow?
5. How can a firm improve its cash flow management with this information?

**Tip:** Monitoring cash flow regularly allows businesses to identify potential shortages in advance and take corrective action.

A firm expects to achieve the following level of sales, to make the following purchases of raw materials, and to make the following payments for indirect expenses for the first 4 months of the year. All sales and purchases of raw materials are on credit, and are paid for in the following month. Indirect expenses are paid for in the month they are incurred. Sales in December totalled $75 and purchases of raw materials in December totalled $54. The opening cash balance at the beginning of January was $117. What is the budgeted closing cash balance at the end of April?

	Jan	Feb	Mar	Apr
Sales	72	70	76	80
Purchases of raw materials	51	53	60	55
Indirect expenses	15	18	16	16

Learn how to calculate the budgeted closing cash balance at the end of April for a firm based on credit sales, raw material purchases, and indirect expenses. This problem involves cash flow analysis and is suitable for business and finance students.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation