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ASSIGNMENT MATERIAL 221

The beginning cash balance for July 1, 2012, is $10,000. On October 1, 2011, Slopes had a cash crunch and borrowed $30,000 on a 6% one-year note with interest payable monthly. The note is due October 1, 2012. Using the information provided, you will need to determine whether Slopes will be in a position to pay off this short-term debt on October 1, 2012.

1. Prepare a cash budget for the months of July through September 2012. Show supporting schedules for the calculation of receivables and payables.

Required

 

2. Will Slopes be in a position to pay off the $30,000 one-year note that is due on October 1, 2012? If not, what actions would you recommend to Slopes’ management?

3. Suppose Slopes is interested in maintaining a minimum cash balance of $10,000. Will the company be able to maintain such a balance during all three months analyzed? If not, suggest a suitable cash man- agement strategy.

6-37 Cash budgeting. On December 1, 2011, the Itami Wholesale Co. is attempting to project cash receipts and disbursements through January 31, 2012. On this latter date, a note will be payable in the amount of $100,000. This amount was borrowed in September to carry the company through the seasonal peak in November and December. Selected general ledger balances on December 1 are as follows:

Cash

$ 88,000

Inventory

65,200

Accounts payable

136,000

Sales terms call for a 3% discount if payment is made within the first 10 days of the month after sale, with the balance due by the end of the month after sale. Experience has shown that 50% of the billings will be col- lected within the discount period, 30% by the end of the month after purchase, and 14% in the following month. The remaining 6% will be uncollectible. There are no cash sales. The average selling price of the company’s products is $100 per unit. Actual and projected sales are as follows:

 

October actual November actual December estimated January estimated

 

$

280,000

 

320,000

330,000

250,000

 

240,000

February estimated Total estimated for year ending June 30, 2012

$2,400,000

 

All purchases are payable within 15 days. Approximately 60% of the purchases in a month are paid that month, and the rest the following month. The average unit purchase cost is $80. Target ending inventories are 500 units plus 10% of the next month’s unit sales. Total budgeted marketing, distribution, and customer-service costs for the year are $600,000. Of this amount, $120,000 are considered fixed (and include depreciation of $30,000). The remainder varies with sales. Both fixed and variable marketing, distribution, and customer-service costs are paid as incurred.

Prepare a cash budget for December 2011 and January 2012. Supply supporting schedules for collections of receivables; payments for merchandise; and marketing, distribution, and customer-service costs.

Required

 

6-38 Comprehensive problem; ABC manufacturing, two products. Follete Inc. operates at capacity and makes plastic combs and hairbrushes. Although the combs and brushes are a matching set, they are sold individually and so the sales mix is not 1:1. Follette Inc. is planning its annual budget for fiscal year 2011. Information for 2011 follows:

Input Prices

Direct materials Plastic Bristles Direct manufacturing labor

$ 0.20 per ounce $ 0.50 per bunch $12 per direct manufacturing labor-hour

6-37

(4050 min.)

Cash budgeting.

Itami Wholesale Co. Statement of Budgeted Cash Receipts and Disbursements For the Months of December 2011 and January 2012

December 2011

January 2012

Cash balance, beginning Add receipts:

$ 88,000

$ 18,470

Collections of receivables (Schedule 1)

 

295,250

265,050

(a)

Total cash available for needs

383,250

283,520

Deduct disbursements:

 

For merchandise purchases (Schedule 2) For variable costs (Schedule 3) For fixed costs (Schedule 3)

$291,280

$223,040

 

66,000

50,000

7,500

7,500

(b)

Total disbursements

364,780

280,540

Cash balance, end of month (a b)

$ 18,470

 

$

2,980

Under the current projections, the cash balance as of January 31, 2012, is $2,980, which is not sufficient to enable repayment of the $100,000 note.

Schedule 1: Collections of Receivables

Collections in

Oct. Sales

Nov. Sales

Dec. Sales

Jan. Sales

Total

December

$39,200 a

$96,000 b

$160,050 c

----

$295,250

January

$44,800 d

$ 99,000 e

$121,250 f

$265,050

a 0.14 × $280,000

d 0.14 × $320,000 e 0.30 × $330,000 f 0.50 × $250,000 × .97

b 0.30 × $320,000 c 0.50 × $330,000 × .97

6-33

© 2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren

Schedule 2: Payments for Merchandise

 

December

January

Target ending inventory (in units) Add units sold (sales ÷ $100) Total requirements Deduct beginning inventory (in units) Purchases (in units) Purchases in dollars (units × $80)

750 a

740 c

3,300

2,500

4,050

3,240

815 b

750

3,235

2,490

$258,800

$199,200

 

December

January

Cash disbursements:

For December: accounts payable; 60% of current month’s purchases For January: 40% of December’s purchases

$136,000

$155,280

$119,520

103,520

 

$291,280

$223,040

a 500 units + 0.10 ($250,000 ÷ $100) b $65,200 ÷ $80 c 500 units + 0.10($240,000 ÷ $100)

Schedule 3: Marketing, Distribution, and Customer-Service Costs

Total annual fixed costs, $120,000, minus $30,000 depreciation

$90,000

Monthly fixed cost requiring cash outlay

$ 7,500

Variable cost ratio to sales =

$600,000

outlay $ 7,500 Variable cost ratio to sales = $600,000 $120,000 $2,400,000 = 0 . 2

$120,000

$2,400,000

= 0.2

December variable costs: 0.2 × $330,000 sales

$66,000

January variable costs:

0.2 × $250,000 sales

$50,000

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© 2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren