Summit Technologies has budgeted activity for April to reflect a net income of $250,000. All sales are credit sales. Receivables are planned to increase by $30,000, payables are planned to decrease by $5,000, and depreciation expense is $60,000. Use this information to determine how much cash will increase (decrease) during April.

Review the completed master budget and answer the following questions: Is Ranger Industries expecting to earn a profit during the next quarter? If so, how much? Does the company need to borrow cash during the quarter? Can it make any repayments? Explain. (Carefully review rows 74 through 80.)

In an attempt to better understand RR’s cash position, Johnson developed a cash budget for the first 2 months of the year. She has the figures for the other months, but they are not shown. After looking at the cash budget, answer the following questions: What does the cash budget show regarding the target cash level? Should depreciation expense be explicitly included in the cash budget? Why or why not? What are some other potential cash inflows besides collections? How can interest earned or paid on short-term securities or loans be incorporated in the cash budget? In her preliminary cash budget, Johnson has assumed that all sales are collected and thus that RR has no bad debts. Is this realistic? If not, how would bad debts be dealt with in a cash budgeting sense? (Hint: Bad debts will affect collections but not purchases.)

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 2019 and 2020: 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: 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 2019. 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.