Qaza Inc. sells produces computer mouses and sells them to other stores. The uni
ID: 2379766 • Letter: Q
Question
Qaza Inc. sells produces computer mouses and sells them to other stores. The unit sales for the 3rd quarter of 2012 are the following:
July
August
September
12,000
13,500
11,000
Qazas CFO is preparing her budget for the 3rd quarter of 2013. She predicts that sales will increase by 10% and each mouse will sell for EUR 15.
Sales are received 60% in the month of sale, and 40% in the next month. Sales of June are expected to be EUR 187,500.
Direct materials cost EUR 8 per unit: 80% is paid in the same month and 20% the following month. Direct materials for June are expected to be EUR 75,000.
Direct Labor is 50,000 per month, paid in the same month.
Overhead costs are applied at 1.10 per Direct Labor cost (per EUR), they include 20,000 of Depreciation. Payments for overhead are done on the same month.
Qaza Inc. expects to conclude a deal with a bank to receive a 2-year loan of EUR 15,000 on 1st of September. The loan will have a 12% interest rate paid every end of month (Principal is paid at the end of the loan life).
Capital Expenditure (for equipment) payments are due in August 2013 of EUR 25,000.
Closing bank balance in June 2013 is expected to be EUR 10,000.
2. Comment on the results. Does Qaza need to change anything?
July
August
September
12,000
13,500
11,000
Qaza Inc. sells produces computer mouses and sells them to other stores. The unit sales for the 3rd quarter of 2012 are the following: Qaza's CFO is preparing her budget for the 3rd quarter of 2013. She predicts that sales will increase by 10% and each mouse will sell for EUR 15. Sales are received 60% in the month of sale, and 40% in the next month. Sales of June are expected to be EUR 187,500. Direct materials cost EUR 8 per unit: 80% is paid in the same month and 20% the following month. Direct materials for June are expected to be EUR 75,000. Direct Labor is 50,000 per month, paid in the same month. Overhead costs are applied at 1.10 per Direct Labor cost (per EUR), they include 20,000 of Depreciation. Payments for overhead are done on the same month. Qaza Inc. expects to conclude a deal with a bank to receive a 2-year loan of EUR 15,000 on 1st of September. The loan will have a 12% interest rate paid every end of month (Principal is paid at the end of the loan life). Capital Expenditure (for equipment) payments are due in August 2013 of EUR 25,000. Closing bank balance in June 2013 is expected to be EUR 10,000. Prepare for Qaza Inc. a cash budget in columnar form for the months July through September 2013, showing clearly the opening and closing balances for each month as well for the total quarter. Comment on the results. Does Qaza need to change anything?Explanation / Answer
Please find below the table relating to sales and collections, as well as direct materials expenses and payments. The values in this table will be used for preparing the cash budget in columnar form.
Please find below the cash budget in columnar form.
Explanation for the above tables:
Sales for Q3 2013 is 10% higher than that of Q3 2012. So sales for July = 12,000*(1+10%)*$15/unit = 198,000
Similarly for Aug, sales = 13,500*(1+10%)*$15/unit = 222,750
Collections for July = 60% * July sales + 40% * Jun sales = 60%*198,000+40%*187,500 = 193,800
Similarly for Direct materials, expenses for July = 12,000*(1+10%)*$8/unit = 105,600
Cash payments for direct materials follows same pattern. Cash payment for July = 80%*July expenses + 20% *June expenses = 80%*105,600+20%*75,000 = 99,480. You can work out all other values using the logic just explained.
Now onto the cash budget in columnar form.
The receipts and direct materials payments are directly from the first sales table.
Direct labor is flat 50,000
Overhead costs is 110%*direct labor less 20,000 of depreciation, i.e. 110%*50,000-20,000 = 35,000
Equipment purchases is one time payment of 25,000 in Aug.
Cash surplus is total cash available for use minus the total disbursements, i.e. for July, this is 203,800-184,480 = 19,320
For Financing, this is 15,000 in September, and the interest is 1% for the month (as it is 12% for the full year). So the interest is 1%*15,000 = 150
Ending cash balance is cash surplus plus the financing amount.
Comment on results:
Given the low cash balance at the end of Aug, it may be desirable to either postpone payment for equipment purchase to September, or speed up the loan so it can be got in Aug itself. This will ensure there is no undue risk to payments at any stage.
Hope this helped ! Let me know in case of any queries.
June July August September Sales 187,500 198,000 222,750 181,500 Collections 193,800 212,850 198,000 Direct materials expenses 75,000 105,600 118,800 96,800 Direct materials payments 99,480 116,160 101,200