Managerial Accounting: Creating Value in a Dynamic Business Environment
11th Edition
ISBN: 9781259569562
Author: Ronald W Hilton Proffesor Prof, David Platt
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 9, Problem 35P
Alpha-Tech, a rapidly growing distributor of electronic components, is formulating its plans for 20x5. Carol Jones, the firm’s marketing director, has completed the following sales
Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. The following information will be used in preparing the cash flow projection.
- Alpha-Tech’s excellent record in
accounts receivable collection is expected to continue. Sixty percent of billings are collected the month after the sale, and the remaining 40 percent two months after. - The purchase of electronic components is Alpha-Tech’s largest expenditure, and each month’s cost of goods sold is estimated to be 40 percent of sales. Seventy percent of the parts are received by Alpha-Tech one month prior to sale, and 30 percent are received during the month of sale.
- Historically, 75 percent of accounts payable has been paid one month after receipt of the purchased components, and the remaining 25 percent has been paid two months after receipt.
- Hourly wages and
fringe benefits , estimated to be 30 percent of the current month’s sales, are paid in the month incurred. - General and administrative expenses are projected to be $15,620,000 for the year. The breakdown of these expenses is presented in the following schedule. All cash expenditures are paid uniformly throughout the year, except the property taxes, which are paid in four equal installments at the end of each quarter.
- Income-tax payments are made at the beginning of each calendar quarter based on the income of the prior quarter. Alpha-Tech is subject to an income-tax rate of 40 percent. Alpha-Tech’s operating income for the first quarter of 20x5 is projected to be $3,200,000. The company pays 100 percent of the estimated tax payment.
- Alpha-Tech maintains a minimum cash balance of $500,000. If the cash balance is less than $500,000 at the end of each month, the company borrows amounts necessary to maintain this balance. All amounts borrowed are repaid out of the subsequent positive cash flow. The projected April 1, 20x5, opening balance is $500,000.
- Alpha-Tech has no short-term debt as of April 1, 20x5.
- Alpha-Tech uses a calendar year for both financial reporting and tax purposes.
Required:
- 1. Prepare a
cash budget for Alpha-Tech by month for the second quarter of 20x5. For simplicity, ignore any interest expense associated with borrowing. - 2. Discuss why cash budgeting is important for Alpha-Tech.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The financial manager of Shatap Corporation wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of $6,612,500 per month. The financial manager has estimated a cost of $40 per transaction in case non-cash asset is converted to cash. The firm's opportunity cost ratio is 12 %.
What is the optimum cash balance, the average cash balance, the number of conversion made during the year, and the total cash cost?
The financial manager of Sarap Corporation wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm's opportunity cost ratio is 12%.
a. The optimum cash balance is?
The financial manager of Sarap Corporation wants to determine the amount of cash atlays to be spent for the next period. He asked the help of the accountant and the lattes provided a cash budget for the next year According to the computation, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm's opportunity cost ratio is 12%
a) the optimum cash tufence is?
b) The average cash balance is?
c) the number of conversion made during the year?
d) The total cash cost is?
Please help me with these. Thank youuuu!
Chapter 9 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 9 - Explain how a budget facilitates communication and...Ch. 9 - Prob. 2RQCh. 9 - Prob. 3RQCh. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - What is meant by the term operational budgets?...Ch. 9 - How does activity-based budgeting explain the...Ch. 9 - Prob. 8RQCh. 9 - Give three examples of how the City of Boston...Ch. 9 - Describe the role of a budget director.
Ch. 9 - What is the purpose of a budget manual?Ch. 9 - Prob. 12RQCh. 9 - Prob. 13RQCh. 9 - Define the term budgetary slack, and briefly...Ch. 9 - How can an organization help to reduce the...Ch. 9 - Prob. 16RQCh. 9 - Discuss this comment by a small-town bank...Ch. 9 - List the steps you would go through in developing...Ch. 9 - Prob. 19RQCh. 9 - Prob. 20RQCh. 9 - Fill in the missing amounts in the following...Ch. 9 - Bodin Company budgets on an annual basis. The...Ch. 9 - Coyote Loco, Inc., a distributor of salsa, has the...Ch. 9 - Greener Grass Fertilizer Company plans to sell...Ch. 9 - The following information is from Tejas...Ch. 9 - Tanya Williams is the new accounts manager at East...Ch. 9 - Sound Investments, Inc. is a large retailer of...Ch. 9 - Handy Hardware is a retail hardware store....Ch. 9 - Prob. 30ECh. 9 - Spiffy Shades Corporation manufactures artistic...Ch. 9 - Western State University (WSU) is preparing its...Ch. 9 - Mary and Kay, Inc., a distributor of cosmetics...Ch. 9 - Prob. 34PCh. 9 - Alpha-Tech, a rapidly growing distributor of...Ch. 9 - Prob. 36PCh. 9 - Scholastic Furniture, Inc. manufactures a variety...Ch. 9 - Prob. 38PCh. 9 - Vista Electronics, Inc. manufactures two different...Ch. 9 - Prob. 40PCh. 9 - Toronto Business Associates, a division of Maple...Ch. 9 - FreshPak Corporation manufactures two types of...Ch. 9 - Healthful Foods Inc., a manufacturer of breakfast...Ch. 9 - We really need to get this new material-handling...Ch. 9 - City Racquetball Club (CRC) offers racquetball and...Ch. 9 - Patricia Eklund, controller in the division of...Ch. 9 - Jeffrey Vaughn, president of Frame-It Company, was...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting 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_forwardThe management of Mecca Copy, a photocopying centre located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year: Cash......................................................................? Accounts Receivable.........................$8100 Supplies Inventory..............................$3200 Equipment...........................................$34000 Accumulated Depreciation...........$16000 Accounts Payable................................$1800 Common Shares.................................$5000 Retained Earnings.........................................? The beginning balance of retained earnings was $28,000, net income is budgeted to be $11,500, and dividends are budgeted to be $4,800. Required: Prepare the company's budgeted balance sheet.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
- Upon receipt of the budget, the team manager, Hilux James, has now informed you that, in keeping with industry players, the management of Toyota & Sons have indicated 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 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_forwardYou are working as a financial analyst for XYZ Co. , and you prepared the following sales and cash disbursement estimates for the period August through December of the current year 80% of sales are for cash, the remaining 20% percent are collected one month later. All disbursements are on a cash basis. The firm wishes to maintain a minimum cash balance of$50. The beginning cash balance in September is $25. Prepare a cash budget for the months of October, November, and December, noting any needed financing or excess cash available.arrow_forwardYou are working as a financial analyst for XYZ Co. , and you prepared the following sales and cash disbursement estimates for the period August through December of the current year 80% of sales are for cash, the remaining 20% percent are collected one month later. All disbursements are on a cash basis. The firm wishes to maintain a minimum cash balance of$50. The beginning cash balance in September is $25. Prepare a cash budget for the months of October, November, and December, noting any needed financing or excess cash available. more detailed answer pleasearrow_forward
- Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Managementhas prepared the following summary of its budgeted cash flows: （picture） The company’s beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded. Required: Prepare the company’s cash budget for the upcoming fiscal yeararrow_forwardThe directors of Royal Ltd have asked you, as a recently employed assistant management accountant, to prepare and review their cash budget. In addition, Royal Ltd requires you to evaluate the different funding options for its expansion plans. Estimated sales and purchases for each of the nine months to September are given below: Jan £,000 Feb £,000 Mar £,000 April £,000 May £,000 June £,000 July £,000 Aug £,000 Sept £,000 Credit sales 2,500 4,000 3,000 16,000 11,350 18,000 14,250 7,500 12,500 Cash sales 550 650 900 900 220 100 300 550 800 Credit purchases 5,000 3,200 6,800 7,000 3,700 4,300 2,200 1,000 5,100 Trade Receivables: Credit sales are to be collected two months after the date they have been sold. Trade Payables: Credit purchases are to be paid one month after the date they have been purchased. Borrowings: The terms of a 5-year loan are coming to an end and Hamble Ltd are due…arrow_forwardYou 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.arrow_forward
- 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 $50arrow_forwardThe financial manager of Sarap Corporation wants to determine the amount of cash outlays to be spent for the nextperiod. He asked the help of the accountant and the latter provided a cash budget for the next year. According tothe computations, the company would be incurring cash expenses of P6,612,500 per month. The financial managerhas estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm’s opportunity costratio is 12%.a. The optimum cash balance is?b. The average cash balance is?c. the number of conversion made during the year is?d. The total cash cost is?arrow_forwardThe financial manager of a firm wants to determine the amount of cash outlays to be spent for the next period. He asked the help of the accountant and the latter provided a cash budget for the next year. According to the computations, the company would be incurring cash expenses of P6,612,500 per month. The financial manager has estimated a cost of P40 per transaction in case non-cash asset is converted to cash. The firm’s opportunity cost ratio is 12%. The optimum cash balance is? The average cash balance is? the number of conversion made during the year is? The total cash cost is?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Responsibility Accounting| Responsibility Centers and Segments| US CMA Part 1| US CMA course; Master Budget and Responsibility Accounting-Intro to Managerial Accounting- Su. 2013-Prof. Gershberg; Author: Mera Skill; Rutgers Accounting Web;https://www.youtube.com/watch?v=SYQ4u1BP24g;License: Standard YouTube License, CC-BY