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. 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 ($1000.200.95 = $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

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter8: Budgeting

Section: Chapter Questions

Problem 1E: At the beginning of the school year, Craig Kovar decided to prepare a cash budget for the months of...

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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

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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