None Problem 14-22 (Static) Cash budget-part 2 LO 14-4, 14-7PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's mostoptimistic projections. Sales are made on account and collected as follows: 60% in the month after the sale is made and 35% in thesecond month after sale. Merchandise purchases and operating expenses are paid as follows:In the month during which the merchandise is purchased or the cost is incurredIn the subsequent month70%30%PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm,follows:SalesJuly$ 84,000August$ 108,000September$ 136,000October$ 118,000Cost of goods sold:Beginning inventoryPurchases$ 12,000$ 28,80088,000Cost of goods available for sale$ 87,600(28,800)Less: Ending inventoryCost of goods soldOperating expensesGross profitOperating income75,600$ 58,800$ 25,20021,000$ 4,200$ 116,800(41,200)$ 75,600$ 32,40025,600$ 41,20097,800$ 139,000(43,800)$ 95,200$ 40,80028,600$ 6,800$ 12,200$ 43,80066,200$ 110,000(40,000)$ 70,000$ 48,00032,200$ 15,800Cash on hand June 30 is estimated to be $75,000. Collections of June 30 accounts receivable were estimated to be $40,000 in Julyand $30,000 in August. Payments of June 30 accounts payable and accrued expenses in July were estimated to be $48,000.Required:a. 1. Prepare a cash budget for August and September.2. What are the prospects for this company if its sales growth continues at a similar rate?b. 1. Assume now that PrimeTime Sportswear is a mature firm, and that the July to September data represent a seasonal peak inbusiness. Prepare a cash budget for October, November, and December, assuming that the income statements for Novemberand December are the same as October's.2. Can the cash budget be used to support a request to a bank for a seasonal loan?Complete this question by entering your answers in the tabs below.

cash budget details projected cash coming in and going out during a set timeframe assisting…

Required: a. 1. Prepare a cash budget for August and September. 2. What are the prospects for this company if its sales growth continues at a similar rate? b. 1. Assume now that PrimeTime Sportswear is a mature firm, and that the July to September data represent a seasonal peak in business. Prepare a cash budget for October, November, and December, assuming that the income statements for November and December are the same as October's. 2. Can the cash budget be used to support a request to a bank for a seasonal loan?

Required: a. 1. Prepare a cash budget for August and September. 2. What are the prospects for this company if its sales growth continues at a similar rate? b. 1. Assume now that PrimeTime Sportswear is a mature firm, and that the July to September data represent a seasonal peak in business. Prepare a cash budget for October, November, and December, assuming that the income statements for November and December are the same as October's. 2. Can the cash budget be used to support a request to a bank for a seasonal loan?

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter21: Budgeting

Section: Chapter Questions

Problem 21.13EX

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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 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.
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.
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.
Budgeted 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.