Information for 2016: 1. Sales forecast: January: 5,100 units; February: 6,900 u
ID: 2474280 • Letter: I
Question
Information for 2016: 1. Sales forecast: January: 5,100 units; February: 6,900 units; March: 7,300 units; April: 7,500 units. The unit sales price is $49. All sales are on credit and collections are 30% in the month of sale and 70% the following month. Accounts receivable as of December 31, 2015 is $18,000 and this amount is expected to be collected in January 2016. 2. End of month inventory must equal 30% of next month’s sales. The inventory at the end of December 2015 was 1,530 units. 3. The following are the expected costs for direct materials, direct labor and manufacturing overhead: DM DL Overhead January $12/unit $15/unit $7,500 + $2.60 per unit produced February $12/unit $15/unit $7,500 + $2.60 per unit produced March $12/unit $15/unit $7,500 + $2.60 per unit produced A. Direct materials are paid 40% in the month incurred and 60% in the following month. Account payable for materials as of December 31, 2015 is $5,100; this amount will be paid in January 2016. B. Direct labor is paid in the month incurred. C. Overhead costs are paid in the month incurred. Fixed overhead includes depreciation of $5,500 per month. 4. Selling costs are sales commissions: $2.10 per unit sold; shipping costs: $0.50 per unit sold. Administrative costs per month are: salaries: $15,000; rent: $2,000; depreciation: $1,900. All costs are paid in month incurred. 5. The company plans to buy equipment costing $19,000 in January and to pay dividends of $35,000 in March 6. The cash balance as of December 31, 2015 is $25,000. The company requires a minimum cash balance of $2,000. The company has a revolving credit with US Bank to borrow in increments of $1,000 at the beginning of each month at interest of 12% annual rate. The company may borrow any amount at the beginning of any month and repays its loans, or any parts of its loans, at the end of any month. Interest payments are due on any principle at the time it is repaid (the amount repaid does not have to be in increments of $1,000). For simplicity, assume that interest is not compounded. As of December 31, 2015 the company has no outstanding loans. Need help with cash budget
Explanation / Answer
Workings:
Cash budget for the quarter jan-march: infows: opening balance of cash 25000 2274 2000 25000 collections from receivbles 92970 276360 343980 713310 total cash available 117970 278634 345980 738310 outflows: payments for direct materials 32172 74304 85872 192348 labor payments 84600 105300 110400 300300 manufacturing overhead expenses 16664 20252 21136 58052 selling expenses 13260 17940 18980 50180 administrative expenses 17000 17000 17000 51000 equipment purchase 19000 19000 dividends 35000 35000 total disbursements 182696 234796 288388 705880 Surplus/deficit for the month -64726 43838 57592 32430 financing: bank borrowings 67000 67000 principal repayments -41018 -25982 -67000 interest payments -820 -779 -1599 total financing 67000 41838 -26761 -1599 ending cash balance 2274 2000 30831 30831 interest for february: amount that can be paid to bank = 43838 - 2000 = 41838 (needn't be in multiples of 1000) interest is due when principal is repaid. Hence, 41838 = 102%, out of which principal is 100% and interest is 2%. interest for march: balance of loan = 67000-41018 = 25982. interest at 3% (for 3 months-beginning of jan to end of march)