Cash Budget

The Barker Corporation manufactures and distributes wooden baseball
bats. The bats are manufactured in Georgia at its only plant. This is a
seasonal business with a large portion of its sales occurring in late
winter and early spring. The production schedule for the last quarter of
the year is heavy to build up inventory to meet expected sales volume.

The company experiences a temporary cash strain during this heavy
production period. Payroll costs rise during the last quarter because
overtime is scheduled to meet the increased production needs.
Collections from customers are low because the fall season produces only
modest sale, This year the company's concern is intensified because
prices are increasing during the current inflationary period. In
addition, the sales department forecasts sales of fewer than 1 million
bats for the first time in three years. This decease in sales appears to
be caused by the popularity of aluminum bats.

The cash account builds up during the first and second quarters as sales
exceed production. The excess cash is invested in U.S. Treasury bills
and other commercial paper. During the last half of the year, the
temporary investments are liquidated to meet the cash needs. In the
early years of the company, short-term borrowing was used to supplement
the funds released by selling investments, but this has not been
necessary in recent years. Because costs are higher this year, the
treasurer asks for a forecast for December to judge if the $40,000 in
temporary investments will be adequate to carry the company through the
month with a minimum balance of $10,000. Should this amount ($40,000) be
insufficient, she wants to begin negotiations for a short-term loan.

The unit sales volume for the past two months and the estimate for the
next four months are:

October (actual) 70,000

November (actual) 50,000

December (estimated) 50,000

January (estimated) 90,000

February (estimated) 90,000

March (estimated) 120,000



The bats are sold for $3 each. All sales are made on account. Half of
the accounts are collected in the month of the sale, 40 percent are
collected in the month following the sale, and the remaining 10 percent
in the second month following the sale. Customers who pay in the month
of sale receive a 2 percent cash discount.

The production schedule for the six-month period beginning with October
reflects the company's policy of maintaining a stable year-round
workforce by scheduling overtime to meet the following production
schedules:

October (actual) 90,000

November (actual) 90,000

December (estimated) 90,000

January (estimated) 90,000

February (estimated) 100,000

March (estimated) 100,000



The bats are made from wooden blocks that cost $6 each. Ten bats can be
produced from each block. The blocks are acquired one year in advance so
they can be properly aged. Barker pays the supplier one-twelfth of the
cost of this material each month until the obligation is retired. The
monthly payment is $60,000.

The plant is normally scheduled for a forty-hour, five-day work week.
During the busy production season, however, the work week may be
increased to six 10-hour days. Each worker can produce 7.5 bats per
hour. Normal monthly output is 75,000 bats. Factory employees are paid
$4 per hour (up $0.50 from last year) for regular time and time and
one-half for overtime.

Other manufacturing costs include variable overhead of $0.30 per unit
and annual fixed overhead of $280,000. Depreciation charges totaling
$40,000 are included among the fixed overhead. Selling expenses include
variable costs of $0.20 per unit and annual fixed costs of $60,000.
Fixed administrative costs are $120,000 annually. All fixed costs are
incurred uniformly throughout the year. The controller has accumulated
the following additional information:

1. The balances of selected accounts as of November 30, 20X0, are

Cash $ 12,000

Marketable securities (cost and market are the same/ 40,000

Accounts receivable 96,000

Prepaid expenses 4,800

Accounts payable (arising from raw material purchases) 300,000

Accrued vacation pay 9,500

Equipment note payable 102,000

Accrued income taxes payable 50,000

2. Interest to be received from the company's temporary investments is
estimated at $500 for December.

3. Prepaid expenses of $3,600 will expire during December, and the
balance of the prepaid account is estimated at $4,200 for the end of
December.

4. Barker purchased new machinery in 20X0 as part of a plant
modernization program. The machinery was financed by a 24-month note of
$144,000. The terms call for equal principal payments over the next 24
months with interest paid at the rate of 1 percent per month on the
unpaid balance at the first of the month. The first payment was made on
May 1, 20X0.

5. Old equipment, which has a book value of $8,000, is to be sold during
December for $7,500.

6. Each month the company accrues $1,700 for vacation pay by charging
Vacation Pay Expense and crediting Accrued Vacation Pay. The plant
closes for two weeks in June when a11 plant employees take a vacation.

7. Quarterly dividends of $0.20 per share will be paid on December 15 to
stockholders of record. Barker Corporation has authorized 10,000 shares.
The company has issued 7,500 shares, and 500 of these classified as
treasury stock.

8. The quarterly income taxes payment of $50,000 is due on December 15,
20X0.