Bonita Products, a rapidly growing distributor of home gardening equipment, is f
ID: 2601282 • Letter: B
Question
Bonita 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. Month January Februar March April May June Sales Month Sales $904,300 July $1,002,600 August $1,503,900 $1,503,900 $904,300September $1,610,000 $1,610,000 $1,254,900 November $1,503,900 1,700,100 $1,,October 1,405.100 December Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information e made oncreditaccountsreceivabethe salted to equal 40%April 30% of Ap Bonita'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, Bonita'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 $1,560,800 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 ing the month of purch Salaries and fringe bene Advertising Property taxes Insurance Utilities Depreciation Total $325,500 378,900 137,400 193,900 178,300 346,800 $1,560,800 ming year is projected to be $324,300. Bonita is subject to a 40% tax rate. The company Operating income for the first quarter of the co pays 100% of its estimated taxes in the month following the end of each quarter. Bonita maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $59,200Explanation / Answer
Cash Budget is as prepared below:
Working Notes:
Bonita products Cash Budget For the quarter ended June 30 Month Particulars April May June Total Opening Cash Balance $59,200 $50,075 $50,299 $59,200 Collection from customers $943,620 $1,056,820 $1,216,340 $3,216,780 cash available for use $1,002,820 $1,106,895 $1,266,639 $3,275,980 Less: cash Disbursements Merchandise purchase $476,018 $530,610 $578,282 1,584,910 Hourly wages and fringe benefits 271,290 347,550 376,470 995,310 Salaries and Fringe benefits (325,500/12) 27,125 27,125 27,125 81,375 Advertising (378,900/12) 31,575 31,575 31,575 94,725 Property taxes (137,400/4) 34,350 34,350 Insurance (193,900/12) 16,158 16,158 16,158 48,475 Utilities (178,300/12) 14,858 14,858 14,858 44,575 Income tax (324,300*40%) 129,720 129,720 129,720 389,160 Total disbursement 966,745 1,097,597 1,208,539 3,272,880 Cash surplus/Deficit 36,075 9,299 58,100 3,100 Financing Borrowing 14,000 41000 55,000 Repayment -7,000 -7,000 Interest -140 -140 Net cash from Financing 14,000 41,000 -7,140 Budgeted ending cash balance 50,075 50,299 50,960 50,960