CORPORATE FINANCE-ACCESS >CUSTOM<
11th Edition
ISBN: 9781260170016
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 26, Problem 1MC
Summary Introduction
To prepare: The cash budget of K manufacturing.
Cash Budget:
Cash budget is prepared to ascertain the amount of cash after a given period of time. Cash budget is a statement that contains the information of cash receipts and cash payments. Closing balance of cash is calculated with the help of cash budget.
Short Term Financial Plan:
The management of every company maintains a plan for short term investment. The short term investment is needed to fulfill the short term financial needs of the company. Every company has different short term financial policy related to the nature and size of the business.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Jason Zhang has recently been hired as a financial analyst for Abbots Masonry Ltd. The CEO has come to Jason with some questions about cash budgeting and whether the company should start budgeting for cash on a monthly or annual basis.
Required:
Prepare the answers to the CEO’s questions as follows:
a) What are the objectives of cash budgeting?
b) Discuss the advantages and disadvantages of preparing a cash budget on a monthly basis versus on an annual basis.
You are hired as a financial manager and your first task is to establish the cash budget of your firm.You gathered the following information.
The firm receives all income from sales•Sales estimates (in millions)* Quarter1 = 1,000; Quarter2 = 1,250; Quarter3 = 1,500; Quarter4 = 2,000; Quarter1 next year = 1,200• Accounts receivable* Beginning receivables = $3000* Average collection period = 45 days• Accounts payable* Purchases = 60% of next quarter’s sales* Beginning payables = 1,200* Accounts payable period is 45 days• Other expenses*Wages, taxes, and other expense are 25% of sales*Interest and dividend payments are $100*A major capital expenditure of $500 is expected in the second quarter•The initial cash balance is $100 and the company maintains a minimum balance of $50
1) Required: establish the cash budget of the firm.
You are hired as a financial manager and your first task is to establish the cash budget of your firm.You gathered the following information:
The firm receives all income from sales•Sales estimates (in millions)* Quarter1 = 1,000; Quarter2 = 1,250; Quarter3 = 1,500; Quarter4 = 2,000; Quarter1 next year = 1,200• Accounts receivable* Beginning receivables = $3000* Average collection period = 45 days• Accounts payable* Purchases = 60% of next quarter’s sales* Beginning payables = 1,200* Accounts payable period is 45 days• Other expenses*Wages, taxes, and other expense are 25% of sales*Interest and dividend payments are $100*A major capital expenditure of $500 is expected in the second quarter•The initial cash balance is $100 and the company maintains a minimum balance of $50
Chapter 26 Solutions
CORPORATE FINANCE-ACCESS >CUSTOM<
Ch. 26 - Prob. 1CQCh. 26 - Prob. 2CQCh. 26 - Prob. 3CQCh. 26 - Cost of Current Assets Grohl Manufacturing, Inc.,...Ch. 26 - Prob. 5CQCh. 26 - Shortage Costs What are the costs of shortages?...Ch. 26 - Prob. 7CQCh. 26 - Prob. 8CQCh. 26 - Prob. 9CQCh. 26 - Prob. 10CQ
Ch. 26 - Prob. 11CQCh. 26 - Prob. 12CQCh. 26 - Prob. 1QPCh. 26 - Cash Equation Blizzard Corp. has a book value of...Ch. 26 - Changes in the Operating Cycle Indicate the effect...Ch. 26 - Prob. 4QPCh. 26 - Calculating Cash Collections The Litzenberger...Ch. 26 - Prob. 6QPCh. 26 - Prob. 7QPCh. 26 - Calculating Payments The Thakor Corporations...Ch. 26 - Calculating Cash Collections The following is the...Ch. 26 - Prob. 10QPCh. 26 - Prob. 11QPCh. 26 - Prob. 12QPCh. 26 - Prob. 13QPCh. 26 - Prob. 14QPCh. 26 - Prob. 15QPCh. 26 - Prob. 1MCCh. 26 - Rework the cash budget and short-term financial...Ch. 26 - Rework the sales budget assuming an 11 percent...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Friendly Bank is attempting to determine the cost behavior of its small business lending operations. One of the major activities is the application activity. Two possible activity drivers have been mentioned: application hours (number of hours to complete the application) and number of applications. The bank controller has accumulated the following data for the setup activity: Required: 1. Estimate a regression equation with application hours as the activity driver and the only independent variable. If the bank forecasts 2,600 application hours for the next month, what will be the budgeted application cost? 2. Estimate a regression equation with number of applications as the activity driver and the only independent variable. If the bank forecasts 80 applications for the next month, what will be the budgeted application cost? 3. Which of the two regression equations do you think does a better job of predicting application costs? Explain. 4. Run a multiple regression to determine the cost equation using both activity drivers. What are the budgeted application costs for 2,600 application hours and 80 applications?arrow_forwardusing the cash budget Upon receipt of the budget, the team manager, Dannie Bruce, has now informed you that, inkeeping with industry players, the management of Sallat Household Furnishings haveindicated an industry requirement to maintain a minimum cash balance of $155,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing. Based on the budget prepared, will the business be achieving this desired industry target?Suggest three (3) internal strategies that may be employed by management to improve the organization’s monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared. Each strategy must be fully explained.arrow_forwardUpon receipt of the budget the team manager has now informed you that the management of Miller Merchandising & More have indicated a desire to maintain a minimum cash balance of $125,000 each month. Based on the budget prepared, will the business be achieving this desired target? Given that the management does not wish to borrow any funds from outside sources, suggest three (3) internal strategies that the business may employ in order to improve the organization’s monthly cash flow. Each strategy must be fully explained(in detailed).arrow_forward
- Samara Co. Manufactures chairs for use in patios & gardens. Because of the seasonality business of Samara managers prepare annual budget for the company. The company’s controller Ahmed Ali is particularly concerned with the cash flows. As his plans must be made in order to provide for the company’s cash needs during the off season. Ahmad has been developing several models to assist him in forecasting various elements of the cash flow. The information presented below will be used to develop a model to predict the cash requirements for quarterly dividends on common stocks. Company manufacturers the chairs only on order that is one month’s production is equivalent to the next month’s shipment. Therefore, detailed operating budgets were developed in terms of units to be produced. 450,000 chairs for next year. Sales price is $60 per chair. Variable production costs Raw materials 11 per unit Direct labor 10 per unit Variable overhead 150% of direct labor in…arrow_forwardUpon receipt of the budget the team manager has now informed you that the management of Miller Merchandising & More have indicated a desire to maintain a minimum cash balance of $125,000 each month. Based on the budget prepared, will the business be achieving this desired target? Given that the management does not wish to borrow any funds from outside sources, suggest three (3) internal strategies that the business may employ in order to improve the organization’s monthly cash flow. Each strategy must be fully explained.arrow_forwardSamara Co. Manufactures chairs for use in patios & gardens. Because of the seasonality business of Samara managers prepare annual budget for the company. The company’s controller Ahmed Ali is particularly concerned with the cash flows. As hisplans must be made in order to provide for the company’s cash needs during the off season. Ahmad has been developing several models to assist him in forecasting various elements of the cash flow. The information presented below will be used to develop a model to predict the cash requirements for quarterly dividends on common stocks. • Company manufacturers the chairs only on order that is one month’s production is equivalent to the next month’s shipment. Therefore, detailed operating budgets were developed in terms of units to be produced. 450,000 chairs for next year. Sales price is $60 per chair. • Variable production costs Raw materials 11 per unit Direct labor 10 per unit Variable overhead 150% of…arrow_forward
- You have been hired by the company LA PLANEACIÓN, S.A., for your track record in Cash Management and for being a CETYS student. With the following information, prepare a Cash Budget by the input-output method: (IMAGE) ( I think it is easy to understand, especially for a bartleby expert.) The budgeted monthly sales for the following fiscal year are: January - 500000February - 600000March - 725000April - 650000May - 700000June - 600000July - 500000August - 550000 Sales are made: 35% cash and 65% on credit which are collected in the following month. The outstanding receivables from 2020 are on the balance sheet. The amount of bad debts is insignificant. Purchases are made two months in advance of what is to be sold. The purchase conditions with suppliers are: 40% of purchases are paid in cash, 30% in the month following the purchase and 30% after two months. The balance payable on the account at December 31 consists of credit purchases in November and credit purchases in December. Cost…arrow_forwardYou have been hired by the company LA PLANEACIÓN, S.A., for your track record in Cash Management and for being a CETYS student. With the following information, prepare a Cash Budget by the input-output method: (IMAGE) ( I think it is easy to understand, especially for a bartleby expert.) The budgeted monthly sales for the following fiscal year are: January - 500000February - 600000March - 725000April - 650000May - 700000June - 600000July - 500000August - 550000 Sales are made: 35% cash and 65% on credit which are collected in the following month. The outstanding receivables from 2020 are on the balance sheet. The amount of bad debts is insignificant. Purchases are made two months in advance of what is to be sold. The purchase conditions with suppliers are: 40% of purchases are paid in cash, 30% in the month following the purchase and 30% after two months. The balance payable on the account at December 31 consists of credit purchases in November and credit purchases in December. Cost…arrow_forwardUpon receipt of the budget, the team manager, Damion Brownie, has now informed you that, in keeping with industry players, the management of Varsity Supplies & Things have indicated an industry requirement to maintain a minimum cash balance of $162,000 each month. He has also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity financing.Based on the budget prepared, will the business be achieving this desired target? Suggest three (3) internal strategies that may be employed by management to improve the organization’s monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared. Each strategy must be fully explained.arrow_forward
- This practice exercise explores simple cash budgets. Create a spreadsheet file that contains a simple monthly cash budget for the next year for the business described in the following scenario: Assume you are thinking about starting a business and would like to forecast your cash needs for the next six months. You expect sales to be approximately $30,000 per month for the first 12 months and your purchases to support sales will be approximately 60% of sales. You anticipate about 20% of your sales will be cash and 80% collected the following month. Your supplier has agreed to extend credit for 70 days at no cost (i.e. you will pay your bills on a two month lag). Your monthly expenses for rent, wages, utilities, and so forth will be approximately $3,500 per month. Identify which of these are fixed costs and which ones are variable costs. You have deposited $15,000 in a checking account to begin your operations and would like to maintain a minimum balance of $5,000 in that account. After…arrow_forwardMarie Marx, the management accountant at “Go Jamdown” is in the process ofplanning the company’s cash needs for the third quarter of 2008. She has receivedthe following information to assist in the preparation of the cash budget for thebusiness.Month Cash Sales Credit Sales Purchases SellingExpensesMay $140,000 $500,000 $0June $160,000 $600,000 $600,000July $180,000 $700,000 $675,000 $ 75,000August $156,000 $580,000 $575,000 $105,000September $160,000 $600,000 $600,000 $ 85,000The following additional information is also available:i) An analysis of the records show that the collection of accounts receivable aresettled, according to the following pattern, in accordance with the creditterms 10/30, n90:o 50% collected in the month of saleo 40% collected in the month following saleo 10% collected two months following saleii) Eighty percent (80%) of monthly purchases is paid in the month of purchase &the remaining 20% will be paid two months following the purchase. The creditterms of…arrow_forwardMarie Marx, the management accountant at “Go Jamdown” is in the process ofplanning the company’s cash needs for the third quarter of 2008. She has receivedthe following information to assist in the preparation of the cash budget for thebusiness.Month Cash Sales Credit Sales Purchases SellingExpensesMay $140,000 $500,000 $0June $160,000 $600,000 $600,000July $180,000 $700,000 $675,000 $ 75,000August $156,000 $580,000 $575,000 $105,000September $160,000 $600,000 $600,000 $ 85,000The following additional information is also available:i) An analysis of the records show that the collection of accounts receivable aresettled, according to the following pattern, in accordance with the creditterms 10/30, n90:o 50% collected in the month of saleo 40% collected in the month following saleo 10% collected two months following saleii) Eighty percent (80%) of monthly purchases is paid in the month of purchase &the remaining 20% will be paid two months following the purchase. The creditterms of…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning