Concept explainers
PROBLEM 8-24
Garden Sales. Inc., sells garden supplies Management is planning its cash needs for the second quarter The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May The following page 403 information has been assembled lo assist in preparing a cash budget for the quarter:
- Budgeted monthly absorption casting income statements for April—July are:
April | May | June | July | |
Sales | $600,000 | $900,000 | $500,000 | $400,000 |
Cost of goods sold…. |
420,000 | 630,000 | 350,000 | 280,000 |
Gross margin ……………………………… |
180,000 | 270,000 | 150,000 | 120,000 |
Selling and administrative expenses: Selling expense |
79,000 | 120,000 | 62,000 | 51,000 |
Administrative expense* | 45,000 | 52,000 | 41,000 | 38,000 |
Total selling and administrative expenses…….. | 24,000 | 172,000 | 103,000 | 89,000 |
Net operating Income | $ 56.000 | $ 98,000 | $ 47,000 | $ 31,000 |
*Includes $20,000 of
- Sales are 20% for cash and 80% on account.
- Sales on account ate collected over a three-month period with 10% collected in the month of sale, 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February’s sales totaled $200,000, and March s sales totaled $300,000.
- Inventory purchases are paid for within 15 days Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $126,000.
- Each month's ending inventory must equal 20% of the cost of the merchandise to be sold m the following month. The merchandise inventory at March 31 is $84,000
- Dividends of $49,000 will be declared and paid in April
- Land costing $16,000 will be purchased for cash in May.
- The cash balance at March 31 is $52,000: the company must maintain a cash balance of at least $40,000 at the end of each month.
- The company has an agreement with a local bank that aliases the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of 5200.000 The interest rate on these loons is l° n per month and for simplicity we will assume that interest is not compounded. The company would, as for as it is able, repay the loan phis accumulated interest at the end of the quarter
Required:
1. Prepare a schedule of expected cash collections for April. May, and June, and for the quarter in total.
2. Prepare the following for merchandise inventory:
a. A merchandise purchases budget for April, May, and June.
b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total
3. Prepare a cash budget for April, May and June as well as in total for the quarter.
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Managerial Accounting
- CASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2015 and 2016: May 2015 180,000 June 180,000 July 360,000 August 540,000 September 720,000 October 360,000 November 360,000 December 90,000 January 2016 180,000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2015 90,000 June 90,000 July 126,000 August 882,000 September 306,000 October 234,000 November 162,000 December 90,000 General and administrative salaries are approximately 27,000 a month. Lease payments under long-term leases are 9,000 a month. Depreciation charges are 36,000 a month. Miscellaneous expenses are 2,700 a month. Income tax payments of 63,000 are due in September and December. A progress payment of 180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be 132,000, and a minimum cash balance of 90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2015. b. Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. c. Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 1 30 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects. d. Bowers sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firms ability to obtain bank credit? Explain.arrow_forwardCASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2014 and 2015: May 2014 180,000 June 180,000 July 360,000 August 540,000 September 720,000 October 360.000 November 360,000 December 90,000 January 2015 180.000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2014 90,000 June 90,000 July 126,000 August 882.000 September 306,000 October 234,000 November 162,000 December 90,000 General and administrative salaries are approximately 27,000 a month. Lease payments under long-term leases are 9,000 a month. Depreciation charges are 36,000 a month. Miscellaneous expenses arc S2,700 a month. Income tax payments of 63,000 arc due in September and December. A progress payment of 180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be 132,000, and a minimum cash balance of 90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2014. b. Prepare monthly estimates of the required financing or excess funds that is, the amount of money Bowers will need to borrow or will have available to invest. c. Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 130 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects. d. Bowers sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys current and debt ratios would vary during the year if all financial requirements were met with short-term bank loans. Could changes in these ratios affect the firms ability to obtain bank credit? Explain.arrow_forwardBudgeted income statement and supporting budgets The, budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for December 2016: a. Estimated .sales for December: Bird house 3,200 units at 50 per unit Bird feeder 3,000 units at 70 per unit b. Estimated inventories at December 1: Direct materials: Finished products: Wood 200 ft Bird house....... 320 units at 27 per unit Plastic 240 lbs. Bird feeder....... 270 units at 40 per unit c. Desired inventories at December 31: Direct materials: Finished products: Wood 220 ft Bird house....... 290 units at 27 per unit Plastic 200 lbs. Bird feeder....... 250 units at 41 per unit d. Direct materials used in production: In manufacture of Bird House: In manufacture of Bird Feeder: Wood 0.80 ft. per unit of product Wood........... 1.20 ft per unit of product Plastic 050 lb. per unit of product Plastic........... 0.75 lb. per unit of product e. Anticipated cost of purchases and beginning and ending inventory of direct materials: Wood 7.00 per ft. Plastic................. 1.00 per lb. f. Direct labor requirements: Bird House: Fabrication Department 0.20 hr. at 16 per hr. Assembly Department 0.30 hr. at 12 per hr. Bird Feeder: Fabrication Department 0.40 hr. at 16 per hr. Assembly Department 0.35 hr. at 12 per hr. g. Estimated factory overhead costs for December. Indirect factory wages 75,000 Power and light 6,000 Depreciation of plant and equipment 23,000 Insurance and property tax 5,000 h. Estimated operating expenses for December: Sales salaries expense 70,000 Advertising expense 18,000 Office salaries expense 21,000 Depreciation expenseoffice equipment 600 Telephone expenseselling 550 Telephone expenseadministrative 250 Travel expenseselling 4,000 Office supplies expense 200 Miscellaneous administrative expense 400 i. Estimated other income and expense for December: Interest revenue 200 Interest expense 122 j. Estimated lax rate: 30% Instructions 1. Prepare a sales budget for December. 2. Prepare a production budget for December. 3. Prepare a direct materials purchases budget for December. 4. Prepare a direct labor cost budget for December. 5. Prepare a factory overhead cost budget for December. 6. Prepare a cost of goods sold budget for December. Work in process at the beginning of December is estimated to be 29,000 and work in process at the end of December is estimated to be 35,400. 7. Prepare a selling and administrative expenses budget for December. 8. Prepare a budgeted income statement for December.arrow_forward
- CASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2016 and 2017. May 2016 180,000 June 180,000 July 360,000 August 540,000 September 720,000 October 360,000 November 360,000 December 90,000 January 2017 180,000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale. 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2016 90,000 June 90,000 July 126,000 August 882,000 September 306,000 October 234,000 November 162,000 December 90,000 General and administrative salaries are approximately 27,000 a month. Lease payments under long-term leases are 9,000 a month. Depredation charges are 36,000 a month. Miscellaneous expenses are 2,700 a month. Income tax payments of 63,000 are due in September and December. A progress payment of 180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be 132,000, and a minimum cash balance of 90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2016. b. Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. c. Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 1/30 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects. d. Bowers sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys current and debt ratios would vary during the year if ail financial requirements were met with short-term bank loans. Could changes in these ratios affect the firms ability to obtain bank credit? Explain.arrow_forwardCASH BUDGETING Rework problem 15-10 using a spreadsheet model. After completing parts a through d, respond to the following: If Bowers customers began to pay late, collections would slow down, thus increasing the required loan amount. If sales dedined, this also would have an effect on the required loan. Do a sensitivity analysis that shows the effects of these two factors on the maximum loan requirement. 15-10 CASH BUDGETING Helen Bowers, owner of Helens Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2016 and 2017. May 2016 180,000 June 180,000 July 360,000 August 540,000 September 720,000 October 360,000 November 360,000 December 90,000 January 2017 180,000 Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale. 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials: May 2016 90,000 June 90,000 July 126,000 August 882,000 September 306,000 October 234,000 November 162,000 December 90,000 General and administrative salaries are approximately 27,000 a month. Lease payments under long-term leases are 9,000 a month. Depredation charges are 36,000 a month. Miscellaneous expenses are 2,700 a month. Income tax payments of 63,000 are due in September and December. A progress payment of 180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be 132,000, and a minimum cash balance of 90,000 should be maintained throughout the cash budget period. a. Prepare a monthly cash budget for the last 6 months of 2016. b. Prepare monthly estimates of the required financing or excess fundsthat is, the amount of money Bowers will need to borrow or will have available to invest. c. Now suppose receipts from sales come in uniformly during the month (that is, cash receipts come in at the rate of 1/30 each day), but all outflows must be paid on the 5th. Will this affect the cash budget? That is, will the cash budget you prepared be valid under these assumptions? If not, what could be done to make a valid estimate of the peak financing requirements? No calculations are required, although if you prefer, you can use calculations to illustrate the effects. d. Bowers sales are seasonal; and her company produces on a seasonal basis, just ahead of sales. Without making any calculations, discuss how the companys current and debt ratios would vary during the year if ail financial requirements were met with short-term bank loans. Could changes in these ratios affect the firms ability to obtain bank credit? Explain. e. f. g. h.arrow_forwardBudgeted income statement and supporting budgets The budget director of Birds of a Feather Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January: a. Estimated sales for January: Birdhouse 6.000 units at 55 per unit Bird feeder 4,500 units at 75 per unit b. Estimated inventories at January 1: Direct materials: Finished products: Wood 220 ft. Birdhouse 300 units at 23 per unit Plastic 250 lb. Bird feeder 240 units at 34 per unit c. Desired inventories at January 31: Direct materials: Finished products: Wood 180 ft. Birdhouse 340 units at 23 per unit Plastic 210 lb. Bird feeder 200 units at 34 per unit d. Direct materials used in production: In manufacture of Birdhouse: In manufacture of Bird Feeder: Wood ... 0.80 ft. per unit of product Wood 1.20 ft. per unitof product Plastic . . 0.50 lb. per unit of product Plastic 0.75 lb. per unit of product e. Anticipated cost of purchases and beginning and ending inventory of direct materials: Wood 8.00 per ft. Plastic 1.20 per lb. f. f. Direct labor requirements: Birdhouse: Fabrication Department 0.20 hr. at15 per hr. Assembly Department 0.30 hr. at 12 per hr. Bird Feeder: Fabrication Department 0.40 hr. at15 per hr. Assembly Department 0.35 hr. at 12 per hr. g. Estimated factory overhead costs for January: Indirect factory wages 80,000 Power and light 8,000 Depreciation of plant and equipment 25,000 Insurance and property tax 2,000 h. Estimated operating expenses for January: Sales salaries expense 90,000 Advertising expense 20,000 Office salaries expense 18,000 Depredation expenseoffice equipment 800 Telephone expenseselling 500 Telephone expenseadministrative 200 Travel expenseselling 5,000 Office supplies expense 250 Miscellaneous administrative expense 450 i. Estimated other income and expense for January: Interest revenue 300 Interest expense 224 j. Estimated tax rate: 30% Instructions 1. Prepare a sales budget for January. 2. Prepare a production budget for January. 3. Prepare a direct materials purchases budget for January. 4. Prepare a direct labor cost budget for January. 5. Prepare a factory overhead cost budget for January. 6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be 29,000, and work in process at the end of January is estimated to be 35,400. 7. Prepare a selling and administrative expenses budget for January. 8. Prepare a budgeted income statement for January.arrow_forward
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