This assessment requires you to interpret the information below and write a shor
ID: 2488499 • Letter: T
Question
This assessment requires you to interpret the information below and write a short 200-250 word report to the management of Adelaide Furniture Wholesalers regarding their cash position. An amount of $150,000 was borrowed from their bank for repayment in full on September 30, 2016. A statement of budgeted cash receipts and disbursements is provided below. Figures for March and April are actual and all remaining months are budgeted.
Adelaide Furniture Wholesalers
Statement of Budgeted Cash Receipts and Disbursements
For the Months March to September 2016
March*
April*
May
June
July
August
Sept
Beginning cash balance
($5,500)
$12,550
$11,300
$12,750
($11,600)
($ 6,450)
$ 37,700
Add receipts: Collection of receivables
$75,800
$55,400
$64,200
$53,200
$86,800
$ 95,000
$ 85,400
Total cash available
$70,300
$67,950
$75,500
$65,950
$75,200
$ 88,550
$123,100
Deduct disbursements:
Material purchases
$25,000
$19,500
$28,000
$29,500
$36,000
$ 18,000
$ 10,800
Direct manufacturing labour
$17,000
$18,400
$15,000
$28,000
$25,000
$ 15,000
$11,000
Variable costs
$3,500
$6,500
$7,500
$7,800
$7,000
$ 4,200
$ 2,800
Fixed costs
$12,000
$12,000
$12,000
$12,000
$13,500
$ 13,500
$ 13,500
Interest payments
$250
$250
$250
$250
$150
$ 150
$ 150
Total disbursements
$57,750
$56,650
$62,750
$77,550
$81,650
$ 50,850
$ 38,250
Ending cash balance
$12,550
$11,300
$12,750
($11,600)
($ 6,450)
$ 37,700
$ 84,850
Additional information: average collections from receivables is targeted at 75% in first month, 20% in second month and the remainder in the third month. Average aging of receivables was: January 2016: 29 days February 2016: 31 days March 2016: 45 days April 2016: 47 days Your report should outline the current cash position of Adelaide Furniture Wholesalers, their ability to repay the loan as scheduled, and identify areas in which action could be taken to improve their cash position.
March*
April*
May
June
July
August
Sept
Explanation / Answer
A) Under the given data we analyse as 1) We do not have any defined pattern with our receivables. At some point it is increasing & at some point it is decreasing This is on account of lack of proper collection circle , that is statde to be increasing month after month 2) Also Material purchase is uneven . Company is highly mismanaged for its payables also 3) Direct Labor has increased suddenly in June & then fell again in July. Though we notice that it has increased in high proportion in comparison to Increase in drect material. 4) Variable costs , Interest cost & fixed costs are somewhat constant at all levels. Overall we can conclude that company has inefficient cash management system B) No, Company will not be able to meet its requirement of payment due on 30th september as it do not expect to have required amount of cash in its balance c) 1) Cash collection from Receivables It is observed that time for cash collection from receivables is increasing month after month company should take strict action to bring back receivable days to initial 29 days collection period. 2) Cash payment to suppier should be regularised and a proper regime should be followed for this 3) Direct Labor cost should be controlled . It should be in proportion to level of activivty & also it must have its proper payment circle
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