Saginaw Concrete is attempting to estimate their financial needs for the first 6

Question

Saginaw Concrete is attempting to estimate their financial needs for the first 6 months of 2010. Sales forecasts for 2010 are as follows:

            January     $50,000      May      $ 80,000

            February     60,000      June      120,000

            March        60,000      July      125,000

            April        70,000

      Actual sales in 2009 were:

                         October     $100,000

                         November     150,000

                         December     200,000

         The credit department estimates the collections as follows: collections within the month of sale, 20 percent; collections the month following the sale, 40 percent; collections the second month following the sale, 40 percent.

         The cost of raw materials is 40 percent of sales. Raw materials are delivered and paid for in the month prior to sale. Labor costs are 24 percent of sales and are paid for in the month of the sale. Selling, administrative, and other expenses are 16 percent of sales and are paid for in the month of the sale. All goods sold are manufactured in the month of the sale.

         A new mixer with a 12year life and no salvage value will be delivered and paid for in May. The cost of the mixer is $144,000, on which depreciation of $20,160 will be charged on June 30 (assuming the mixer falls in the MACRS 7-year class life).

         Semiannual interest charges on $345,833 of longterm bonds (12 percent coupon) are due in March. Quarterly common stock cash dividends of $10,000 are paid in March and June. Income tax prepayments of $18,000 are made in March.

         Cash on hand December 31, 2009, is $60,000, and a minimum cash balance of $50,000 should be maintained. All shortterm borrowing is repaid as soon as cash is available. The interest rate on shortterm borrowing is 12 percent per annum. All borrowing and repayments take place on the first day of the month. Interest payments are due the first day of the month following the borrowing.

39. Prepare a cash budget for Saginaw Concrete for the first 6 months of 2010. Indicate the amount of excess cash or the amount of financing required to maintain the $50,000 minimum cash balance.

40.   If Saginaw Concrete changed all sales to a cash basis, no credit, would their outside financing needs for the cash budget period studied increase or decrease? Do not rework the problem but simply explain why it would increase or decrease.

Explanation / Answer

39 Cash Receipts Schedule Cash Receipts January February March April May June Sales in Value $50,000 $60,000 $60,000 $70,000 $80,000 $120,000 Collections From NovemberSales $60,000 From December Sales $80,000 $80,000 From January Sales $10,000 $20,000 $20,000 From February Sales $12,000 $24,000 $24,000 From March Sales $12,000 $24,000 $24,000 From April Sales $14,700 $28,000 $28,000 From May Sales $16,000 $32,000 From June Sales $24,000 Total Cash Rfeceipts $150,000 $112,000 $56,000 $62,700 $68,000 $84,000 Purchases January February March April May June July Sales $50,000 $60,000 $60,000 $70,000 $80,000 $120,000 $125,000 Material Cost $20,000 $24,000 $24,000 $28,000 $32,000 $48,000 $50,000 Purchases $24,000 $24,000 $28,000 $32,000 $48,000 $50,000 Labour Costs $12,000 $14,400 $14,400 $16,800 $19,200 $28,800 Selling Admin &Other Exp. $8,000 $9,600 $9,600 $11,200 $12,800 $19,200 Cash Badget for Six Month in 2010 Cash Budget January February March April May June Cash Balance at Beginning $60,000 $166,000 $230,000 $185,250 $187,950 $50,000 Cash Receipts $150,000 $112,000 $56,000 $62,700 $68,000 $84,000 Total Cash Available $210,000 $278,000 $286,000 $247,950 $255,950 $134,000 Disbursements Purchases $24,000 $24,000 $28,000 $32,000 $48,000 $50,000 Labour Cost $12,000 $14,400 $14,400 $16,800 $19,200 $28,800 Selling Admin &Other Exp. $8,000 $9,600 $9,600 $11,200 $12,800 $19,200 Mixer $144,000 Common Stock Dividend $      10,000 $10,000 Interest on long tem Bond $      20,750 Income Tax Payment $18,000 Total Disbursements $44,000 $48,000 $100,750 $60,000 $224,000 $108,000 Excess / Deficiency of Cash available over Disbursements $166,000 $230,000 $185,250 $187,950 $31,950 $26,000 Financing Borrowing at The Beginning $0 $0 $0 $0 $18,050 $24,000 Payments at the beginning $0 $0 $0 $0 $0 $0 Interest $0 $0 $0 $0 $0 $0 Total financing $0 $0 $0 $0 $18,050 $24,000 Cash Balance Ending $166,000 $230,000 $185,250 $187,950 $50,000 $50,000 *** Assume that the Interest Due on Bonds is Paid Interest on Bond 345833*12%*6/12 $20,750 40 When Saginaw Concrete Changes all sales from credit basis to Cash Basis their Outside financing Needs Will Decrease As they will Receive an extra receipt of $32000 from May Sales and $96000 from JuneSales in the current period under cosideration which will certainly eliminate the outside financing needs

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.