Bobcat Printingmakes customt---shirts and other promotional productsforstudent o
ID: 2588434 • Letter: B
Question
Bobcat Printingmakes customt---shirts and other promotional productsforstudent organizations and ... Bobcat Printingmakes customt---shirts and other promotional productsforstudent organizations and businesses. It is beginning its first year of operations and needs to plan for its first quarter of operations. They would like to maximize their profits, and understand that accurate budgeting can help achieve that goal. The budgets will be prepared based on the following information: a. Sales are budgeted at $30,000 for Month 1, $32,500 for Month 2, and $34,000 for Month 3. All sales will be done on account. Company does not expect to have any cash sales. b. Sales are collected 50% in the month of the sale, and 50% in the month following the sale. c. Cost of Goods Sold is budgeted at 40% of Sales. d. Monthly selling, general, and administrative expenses are as follows: donations are 10% of sales; advertising is 3% of sales; miscellaneous is 1% of sales; and rent is $5,000 per month. All SG&A expenses are paid in the month they are incurred. e. Since all of the orders are custom made, no inventory is kept on hand at the end of the month. f. Inventory purchases are paid in full in the month following the purchase. g. Bobcat Printing is planning to purchase a building in Month 3 for $8,000 in cash. h. They would like to maintain a minimum cash balance of $2,500 at the end of each month. The company has an agreement with a local bank that allows them to borrow, with a total line of credit of $20,000. The interest rate on these loans is 1% per month (12% annual). They would as far as able, repay the loan on the last day of the month when it has enough cash to pay the full balance and maintain an adequate ending cash balance. i. The owner makes a draw of $5,000 every month. (Note: sole proprietors and partnerships take owner’s draws, while stockholders receive dividends). When making calculations always round up (for example: 33 × 7% = 2.31, round up to 3.00). Check Figures: Gross Margin $57,900 Total assets $27,973 Ending Retained Earnings $14,373
14. Will Bobcat Printing need to borrow money in Month 1? A. Yes B. No
15. If you answered "Yes" that Bobcat Printing had to borrow money in the first month, how much money will it need to borrow to ensure it does not have a cash shortage? A. $1,700 B. $1,400 C. $500 D. Bobcat Printing does not borrow in the first month.
16. If Bobcat Printing borrowed money in Month 1, what is the projected interest expense it will incur for borrowing the money? A. $140 B. Bobcat Printing will not have interest because it does not need to borrow money in Month 1. C. $17 D. $170 E. $14
17. Bobcat Printing will have a cash surplus in Month 2. True False
Explanation / Answer
14. Yes, Bobcat Printing need to borrow $ 1,700 in the 1st Month.
15. Bobcat Printing will borrow $ 1,700 in the 1st month then it will not have any cash shortage.
16. Bobcat Printing will have incurred interest cost of $17 ($1,700*0.01)
17. Yes Bobcat Printing will have surplus cash in the 2nd Month
Month ($) 1 2 3 Sales 30000 32500 34000 Opening Cash Balance 0 2500 4683 Cash Recd from Sales Current Month Sales 15000 16250 17000 Previous Month Sales Cash Recd 15000 16250 Total Cash Inflows 15000 33750 37933 Cost of Goods Sold-40% of Sales 12000 13000 13600 Payment of Previous Month Purchase 12000 13000 Sellinng, General and Administrative Expense Donations-10% of Sales 3000 3250 3400 Advertisement-3% of Sales 900 975 1020 Misc-1% of Sales 300 325 340 Rent 5000 5000 5000 Interest on Borrowings 17 Drawings 5000 5000 5000 Building Purchase 8000 Total Cash Outflows 14200 26567 35760 Surplus/(Deficiency) 800 7183 2173 Amount to be Borrow/(Repaid) 1700 -2500 0 Minimum Cash Balance 2500 2500 2500 Actual Cash Balance 2500 4683 2173