1.
value: 16.66 points
| Coyote Loco, Inc., a manufacturer of salsa, has the following historical collection pattern for its credit sales. |
| 70 percent collected in the month of sale. |
| 15 percent collected in the first month after sale. |
| 10 percent collected in the second month after sale. |
| 4 percent collected in the third month after sale. |
| 1 percent uncollectible. |
| The sales on account have been budgeted for the last seven months as follows: |
| June | $ | 49,000 | |
| July | 60,000 | ||
| August | 70,000 | ||
| September | 80,000 | ||
| October | 90,000 | ||
| November | 100,000 | ||
| December | 85,000 | ||
| Required: |
| 1. | Compute the estimated total cash collections during October from credit sales. (Omit the “$” sign in your response.) |
| Total cash collections | $ |
| 2. | Compute the estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter. (Omit the “$” sign in your response.) |
| Total cash collections | $ |
2.
value: 16.66 points
| Sound Investments, Inc. is a large retailer of stereo equipment. The controller is about to prepare the budget for the first quarter of 20×2. Past experience has indicated that 75 percent of the store’s sales are cash sales. The collection experience for the sales on account is as follows: |
| 80 percent during month of sale |
| 15 percent during month following sale |
| 5 percent uncollectible |
| The total sales for December 20×1 are expected to be $190,000. The controller feels that sales in January 20×2 could range from $100,000 to $160,000. |
| Required: |
| 1. | Demonstrate how financial planning can be used to project cash receipts in January of 20×2 for three different levels of January sales. Use the following columnar format. (Omit the “$” sign in your response.) |
| Total Sales in January 20×2 | |||
| $100,000 | $130,000 | $160,000 | |
| Cash receipts in January, 20×2 | |||
| From December sales on account | $ | $ | $ |
| From January cash sales | |||
| From January sales on account | |||
| Total cash receipts | $ | $ | $ |
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3.
value: 16.66 points
| Handy Hardware is a retail hardware store. Information about the store’s operations follows. |
| • | November 20×1 sales amounted to $200,000. |
| • | Sales are budgeted at $220,000 for December 20×1 and $200,000 for January 20×2. |
| • | Collections are expected to be 60 percent in the month of sale and 38 percent in the month following the sale. Two percent of sales are expected to be uncollectible. Bad debts expense is recognized monthly. |
| • | The store’s gross margin is 25 percent of its sales revenue. |
| • | A total of 80 percent of the merchandise for resale is purchased in the month prior to the month of sale, and 20 percent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase. |
| • | Other monthly expenses paid in cash amount to $22,600. |
| • | Annual depreciation is $216,000. |
| The company’s balance sheet as of November 30, 20×1, is as follows: |
| HANDY HARDWARE, INC. Balance Sheet November 30, 20×1 | |||
| Assets | |||
| Cash | $ | 22,000 | |
| Accounts receivable (net of $3,500 allowance for uncollectible accounts) | 76,000 | ||
| Inventory | 140,000 | ||
| Property, plant, and equipment (net of $590,000 accumulated depreciation) | 862,000 | ||
| Total assets | $ | 1,100,000 | |
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| Liabilities and Stockholders’ Equity | |||
| Accounts payable | $ | 162,000 | |
| Common stock | 795,000 | ||
| Retained earnings | 143,000 | ||
| Total liabilities and stockholders’ equity | $ | 1,100,000 | |
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| Required: |
| 1. | Compute the budgeted cash collections for December 20×1. (Omit the “$” sign in your response.) |
| Budgeted cash collections | $ |
| 2. | Compute the budgeted income (loss) before income taxes for December 20×1. (Omit the “$” sign in your response.) |
| Budgeted before taxes | $ |
| 3. | Compute the projected balance in accounts payable on December 31, 20×1. (Omit the “$” sign in your response.) |
| Accounts payable balance | $ |
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4.
value: 16.66 points
| Mary and Kay, Inc., a distributor of cosmetics throughout Florida, is in the process of assembling a cash budget for the first quarter of 20×1. The following information has been extracted from the company’s accounting records: |
| • | All sales are on account. Sixty percent of customer accounts are collected in the month of sale; 35 percent are collected in the following month. Uncollectibles amounting to 5 percent of sales are anticipated, and management believes that only 20 percent of the accounts outstanding on December 31, 20×0, will be recovered and that the recovery will be in January 20×1. |
| • | Seventy percent of the merchandise purchases are paid for in the month of purchase; the remaining 30 percent are paid for in the month after acquisition. |
| • | The December 31, 20×0, balance sheet disclosed the following selected figures: cash, $20,000; accounts receivable, $55,000; and accounts payable, $22,000. |
| • | Mary and Kay, Inc. maintains a $20,000 minimum cash balance at all times. Financing is available (and retired) in $1,000 multiples at an 8 percent interest rate, with borrowings taking place at the beginning of the month and repayments occurring at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid at that time. |
| • | Additional data: |
| January | February | March | |||||||
| Sales revenue | $ | 150,000 | $ | 180,000 | $ | 185,000 | |||
| Merchandise purchases | 90,000 | 100,000 | 140,000 | ||||||
| Cash operating costs | 31,000 | 24,000 | 45,000 | ||||||
| Proceeds from sale of equipment | — | — | 5,000 | ||||||
| Required: |
| 1. | Prepare a schedule that discloses the firm’s total cash collections for January through March. (Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.) |
| January | February | March | |
| Collection of accounts receivable: | $ | $ | $ |
| Collection of January sales | |||
| Collection of February sales | |||
| Collection of March sales | |||
| Sale of equipment | |||
| Total cash collections | $ | $ | $ |
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| 2. | Prepare a schedule that discloses the firm’s total cash disbursements for January through March. (Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.) |
| January | February | March | |
| Payment of accounts payable | $ | $ | $ |
| Payment of January purchases | |||
| Payment of February purchases | |||
| Payment of March purchases | |||
| Cash operating costs | |||
| Total cash disbursements | $ | $ | $ |
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| 3. | Prepare a schedule that discloses the firm’s cash needs, if any, for January through March. The schedule should present the following information in the order cited: Beginning cash balance, total receipts (from requirement (1)), total payments (from requirement (2)), the cash excess (deficiency) before financing, borrowing ne-eded to maintain minimum balance, loan principal repaid, loan interest paid, and ending cash balance. (Leave no cells blank – be certain to enter “0” wherever required. Amounts to be deducted should be indicated by a minus sign. Omit the “$” sign in your response.) |
| January | February | March | |
| Beginning cash balance | $ | $ | $ |
| Total receipts | |||
| Subtotal | $ | $ | $ |
| Less: Total disbursements | |||
| Cash excess (deficiency) before financing | $ | $ | |
| Financing: | |||
| Borrowing to maintain $20,000 balance | |||
| Loan principal repaid | |||
| Loan interest paid | |||
| Ending cash balance | $ | $ | $ |
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5.
value: 16.66 points
| Badlands, Inc. manufactures a household fan that sells for $40 per unit. All sales are on account, with 40 percent of sales collected in the month of sale and 60 percent collected in the following month. The data that follow were extracted from the company’s accounting records. |
| • | Badlands maintains a minimum cash balance of $30,000. Total payments in January 20×1 are budgeted at $390,000. |
| • | A schedule of cash collections for January and February of 20×1 revealed the following receipts for the period: |
| Cash Receipts | ||||||
| January | February | |||||
| From December 31 accounts receivable | $ | 216,000 | ||||
| From January sales | 152,000 | $ | 228,000 | |||
| From February sales | 156,800 | |||||
| • | March 20×1 sales are expected to total 10,000 units. |
| • | Finished-goods inventories are maintained at 20 percent of the following month’s sales. |
| • | The December 31, 20×0, balance sheet revealed the following selected figures: cash, $45,000; accounts receivable, $216,000; and finished goods, $44,700. |
| Required: | |
| 1. | Determine the number of units that Badlands sold in December 20×0. |
| December sales | units |
| 2. | Compute the sales revenue for March 20×1. (Omit the “$” sign in your response.) |
| Sales revenue | $ |
| 3. | Compute the total sales revenue to be reported on Badlands’ budgeted income statement for the first quarter of 20×1. (Omit the “$” sign in your response.) |
| Total sales revenue | $ |
| 4. | Determine the accounts receivable balance to be reported on the March 31, 20×1, budgeted balance sheet. (Omit the “$” sign in your response.) |
| Accounts receivable balance | $ |
| 5. | Calculate the number of units in the December 31, 20×0, finished-goods inventory. |
| Finished-goods inventory | units |
| 6. | Calculate the number of units of finished goods to be manufactured in January 20×1. |
| Finished goods to be manufactured | units |
| 7. | Calculate the financing required in January, if any, to maintain the firm’s minimum cash balance. (Omit the “$” sign in your response.) |
| Financing required | $ |
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6.
value: 16.70 points
| Scholastic Furniture, Inc. manufactures a variety of desks, chairs, tables, and shelf units that are sold to public school systems throughout the Midwest. The controller of the company’s Desk Division is currently preparing a budget for the second quarter of the year. The following sales forecast has been made by the division’s sales manager. |
| April | 10,000 | desk-and-chair sets | |
| May | 12,000 | desk-and-chair sets | |
| June | 15,000 | desk-and-chair sets | |
| Each desk-and-chair set requires 10 board feet of pine planks and 1.5 hours of direct labor. Each set sells for $50. Pine planks cost $.50 per board foot, and the division ends each month with enough wood to cover 10 percent of the next month’s production requirements. The division incurs a cost of $20 per hour for direct-labor wages and fringe benefits. The division ends each month with enough finished-goods inventory to cover 20 percent of the next month’s sales. |
| Required: |
| Complete the following budget schedules. |
| 1. | Sales budget (Omit the “$” sign in your response): |
| April | May | June | |||
| Sales (in sets) | 10,000 | ||||
| Sales price per set | × $ | 50 | × $ | × $ | |
| Sales revenue | $ | 500,000 | $ | $ | |
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| 2. | Production budget (in sets): (Input all amounts as positive values.) |
| April | May | June | ||
| Sales | 10,000 | |||
| Add: Desired ending inventory | 2,400 | 3,000 | ||
| Total requirements | 12,400 | |||
| Less: Projected beginning inventory | 2,000 | |||
| Planned production | 10,400 | |||
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| 3. | Raw-material purchases (Round your Cost per board foot answers to 2 decimal places. Input all amounts as positive values. Omit the “$” sign in your response): |
| April | May | June | |||
| Planned production (sets) | 10,400 | ||||
| Raw material required per set (board feet) | × | 10 | × | × | |
| Raw material required for production (board feet) | 104,000 | ||||
| Add: Desired ending inventory of raw material (board feet) (10% of next month’s requirement) | 12,600 | 16,000 | |||
| Total requirements | 116,600 | ||||
| Less: Projected beginning inventory of raw material (board feet) (10% of current month’s requirement) | 10,400 | ||||
| Planned purchases of raw material (board feet) | 106,200 | ||||
| Cost per board foot | × $ | .50 | × $ | × $ | |
| Planned purchases of raw material (dollars) | $ | 53,100 | $ | $ | |
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| 4. | Direct-labor budget (Round your Direct-labor hours per set answers to 1 decimal place. Omit the “$” sign in your response): |
| April | May | June | |||
| Planned production (sets) | 10,400 | ||||
| Direct-labor hours per set | × | 1.5 | × | × | |
| Direct-labor hours required | 15,600 | ||||
| Cost per hour | × $ | 20 | × $ | × $ | |
| Planned direct-labor cost | $ | 312,000 | $ | $ |
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