Please answer questions in RED Only! Crane Products, a rapidly growing distribut
ID: 2601054 • Letter: P
Question
Please answer questions in RED Only!
Crane Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm's marketing director, has completed the following sales forecast. Sales Month Sales Ju August Month January Februar March April May June $903,800 $1,001,200 $1,501,000 $1,501,000 $903,800 $1,150,300 $1,252,100 $1,407,500 September October November December $1,604,500 $1,604,500 $1,501,000 $1,700,900 Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information. All sales are made on credit. Crane's excellent record in accounts receivable collection is expected to continue with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale. Cost of goods sold, Crane's largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase Hourly wages and fringe benefits, estimated at 30% of the current month's sales, are paid in the month incurred. General and administrative expenses are projected to be $1,565,600 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter $323,800 Salies and fringe benefits Advertising Property taxes Insurance Utilities Depreciation Total 374,300 145,100 194,600 178,400 349,400 $1,565,600Explanation / Answer
Interest paid in May = $94631 x 12% x 2/12 = $1892.62 = $1893
Interest paid in June = ($94631 - $54000) x 12% x 3/12 = $40631 x 12% x 3/12 = $1218.93 = $1219
Note: Only relevant portions of cash budget are reproduced here.
Amounts are rounded off to 2 decimal places.
Repayment in May made in 1000s. Actual remaining balance repaid in June.
Cash Budget April May June Quarter Beginning Cash balance 50300 50000 50499 50300 Collection from Sales 942760 1051700 1211380 3205840 Total cash available to spend 993060 1101700 1261879 3256140 Total cash disbursements 1037691 995308 1125756 3158756 Cash excess (deficiency) -44631 106392 136123 97384 Minimum cash balance 50000 50000 50000 50000 Cash excess (needed) -94631 56392 86123 47384 Financing: Interest 0 -1893 -1219 -3112 Repayments 0 -54000 -40631 -94631 Borrowings 94631 0 0 94631 Total financing 94631 -55893 -41850 -3112 Ending Cash Balance 50000 50499 94273 94272