Assume actual cash receipts and disbursements will follow the pattern below: (No
ID: 2593166 • Letter: A
Question
Assume actual cash receipts and disbursements will follow the pattern below: (Note: Receivables and
Payables of 12/31/x1 will have a cash impact in 20x2.)
1. 18.00% of sales for the year are made in November and December. Since our customers have 60 day terms
those funds will be collected be collected in January and February.
2. 86.00% of material purchases will be paid during the year, the remaining portion will be paid in Januay or February.
3. All other manufacturing and operating costs are paid for when incurred.
4. The budgeted depreciation expense is equal to 0.6% of the fixed manufacturing, selling and administrative expenses.
5. Minimum Cash Balance needed for 20x2, $185,000 .
Beginning Cash Balance
$ 34,710.000
Cash Inflows:
Sales Collections:
Account Receivable (Sales last year not collected)
$ 67,500.00
Sales made and collected in 20x2
$ 1,086,500.00
Cash Available
$ 1,188,710.00
Cash Outflows:
Purchases
Accounts Payable (Purchases last year)
$ 54,000.000
Purchases made and paid for in 20x2
$ 354,337.20
Other Manufacturing Costs
Direct Labor
$ 51,240.000
Total Manufacturing Overhead
$ 341,484.000
Selling and Administrative
$ 207,250.000
Less: Depreciation
$ 21,900.00
Total Cash Outflows
$ 986,411.20
Budgeted Cash Balance before financing
$ 202,298.80
Needed Minimum Balance
$ 185,000.000
Amount to be borrowed (if any)
$ -
Budgeted Cash Balance
$ 202,298.80
The number I have in bold are incorrect. Please assist. Thank you!
Assume actual cash receipts and disbursements will follow the pattern below: (Note: Receivables and
Payables of 12/31/x1 will have a cash impact in 20x2.)
1. 18.00% of sales for the year are made in November and December. Since our customers have 60 day terms
those funds will be collected be collected in January and February.
2. 86.00% of material purchases will be paid during the year, the remaining portion will be paid in Januay or February.
3. All other manufacturing and operating costs are paid for when incurred.
4. The budgeted depreciation expense is equal to 0.6% of the fixed manufacturing, selling and administrative expenses.
5. Minimum Cash Balance needed for 20x2, $185,000 .
Beginning Cash Balance
$ 34,710.000
Cash Inflows:
Sales Collections:
Account Receivable (Sales last year not collected)
$ 67,500.00
Sales made and collected in 20x2
$ 1,086,500.00
Cash Available
$ 1,188,710.00
Cash Outflows:
Purchases
Accounts Payable (Purchases last year)
$ 54,000.000
Purchases made and paid for in 20x2
$ 354,337.20
Other Manufacturing Costs
Direct Labor
$ 51,240.000
Total Manufacturing Overhead
$ 341,484.000
Selling and Administrative
$ 207,250.000
Less: Depreciation
$ 21,900.00
Total Cash Outflows
$ 986,411.20
Budgeted Cash Balance before financing
$ 202,298.80
Needed Minimum Balance
$ 185,000.000
Amount to be borrowed (if any)
$ -
Budgeted Cash Balance
$ 202,298.80
The number I have in bold are incorrect. Please assist. Thank you!
Explanation / Answer
Depreciation is a non-cash item. It does not affect actual cash flow even when it is considered as expenditure. Depreciation is just an amortization of expenditure, during useful life of asset, already incurred in year of purchase.
In the given case, Depreciation expense has been deducted from other expenses which is wrong. It will neither reduce cash flow nor increase it. Hence total cash outflow will be :
(Note: While giving this answer, it is assumed that depreciation is not included in total manufacturing overheads. If in actual it is included in total manufacturing overheads, then deducting the depreciation amount is given correct effect.)
PURCHASE Accounts Payable (Purchases last year) $54,000.00 Purchases made and paid for in 20x2 $354,337.20 OTHER MANUFACTURING COST Direct Labour $51,240.00 Total Manufacturing Overhead $341,484.00 Selling and Administrative $207,250.00 TOTAL CASH OUTFLOW $1,008,311.20Related Questions
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