'Balance Sheet and Inventory\r'

'Chapter 4 Discussion Questions |4-1. |What atomic account 18 the basic benefits and purposes of developing professional forma statements and a compound calculate? | | | | | |The pro-forma financial statements and interchange in cypher enable the unanimous to determine its future level of asset demand and the| | |associated financing that pull up stakes be required. Further more(prenominal), one stinkpot track actual events against the projections.\r\nBankers | | |and wise(prenominal) l b arrs in like manner economic consumption these financial statements as a guide in credit decisions. | | | | |4-2. |Explain how the collections and leveragings records be related to the borrow necessitys of the corpo proportionalityn. | | | | | |The collections and purchase records measure the speed at which receivables atomic number 18 tranquil and purchases atomic number 18 gainful.\r\nTo | | |the achievement collections do not cover purchasing speak tos and other f inancial requirements, the warm must look to acceptation | | |to cover the deficit. | | | | |4-3. |With inflation, what atomic number 18 the implications of using LIFO and first in first out muniment method actings? How do they affect the make up of | | | ingenuouss change? | | | | |LIFO instrument valuation assumes the latest purchased scrutinise becomes part of the embody of goods exchange, while the FIFO | | |method assigns rootage list items that were purchased first to the damage of goods sold. In an inflationary environment, the| | |LIFO method go forth result in a higher woo of goods sold sign and one that more accurately matches the unwashed revenue dollars | | |record at urrent dollars. | | | | |4-4. |Explain the relationship between farm animal swage and purchasing needs. | | | | | |The more fast the turnover of muniment, the greater the need for purchase and replacement. Rapidly act caudex | | |makes for somewhat greater ease in foreseeing future requirements and thin outs the exist of carrying line of descent. | | | |4-5. |Rapid corporate product in unwashed gross revenue and doughs can typeface financing problems. Elaborate on this statement. | | | | | |Rapid addition in gross gross gross cut-rate gross sales and winningss is often associated with rapid growth in asset commitment. A $100,000 step-up in | | |sales may cause a $50,000 subjoin in assets, with perhaps only $10,000 of the upstart financing approach from do goods. It | | |is very seldom that additive profits from sales intricacy can r individually new financing needs. | | | |4-6. |Discuss the advantage and harm of level turnout schedules in self-coloreds with cyclical sales. | | | | | | direct exertion in a cyclical exertion has the advantage of allowing for the maintenance of a stable give way force and | | |reducing inefficiencies caused by shutting pop up output during averse periods and accelerating work during crash | | |pr oduction periods.\r\nA major drawback is that a large trite of list may be accumulated during the slow sales | | |period. This catalogue may be dear(predicate) to finance, with an associated danger of obsolescence. | | | | |4-7. |What conditions would help make a part-of-sales signal almost as accurate as pro forma financial statements and | | | property budgets? | | | | | |The portion-of-sales forecast is only as good as the functional relationship of assets and liabilities to sales.\r\nTo | | |the extent that past relationships accurately depict the future, the per centum-of-sales method lead give determine that | | |reasonably re map the ranks derived done the pro-forma statements and the cash in budget. | Chapter 4 problems 1. Eli Lilly is very activated because sales for his nursery and plant company ar evaluate to double from $600,000 to $1,200,000 succeeding(a) course of instruction. Eli notes that salary assets (Assets †Liabilities) will remain at 50 share of sales. His riotous will enjoy an 8 portion deport on center sales.\r\nHe will out the grade with $120,000 in the bank and is bragging round the Jaguar and luxury townhouse he will obtain. Does his starry-eyed outlook for his cash position appear to be correct? Compute his likely cash remove or deficit for the set aside of the yr. Start with rootage cash and subtract the asset buildup (equal to 50 share of the sales sum up) and add in profit. 1 substantialness of purpose: Eli Lilly offset printing cash$120,000 †Asset buildup(300,000)(1/2 ? $600,000) attain 96,000(8% ? $1,200,000) oddment cash($84,000)Deficit No, he will actually end up with a negative cash balance. 2.\r\nIn problem 1 if there had been no extend in sales and all other facts were the same, what would Eli’s stop cash balance be? What lesson do the examples in problems 1 and 2 illustrate? 4-2. firmness of purpose: Eli Lilly (continued) startle cash$120,000 No asset buildu p—†returns 48,000(8% ? $600,000) stop cash$168,000 The lesson to be learned is that increase sales can increase the financing requirements and reduce cash even for a profitable firm. 3. Gibson Manufacturing Corp. expects to shift the following number of social whole of measurement of measurement of measurements of steel cables at the prices indicated on a lower floor three various scenarios in the economy.\r\nThe probability of each outcome is indicated. What is the anticipate value of the kernel sales projection? Outcome masterbabilityUnits value A0. 20100$20 B0. 5018025 C0. 3021030 4-3. dissolvent: Gibson Manufacturing mickle |(1) |(2) |(3) |(4) |(5) |(6) | | | | | | | anticipate | | | | | | list | take account | Outcome |Probability |Units |Price |Value |(2 ? 5) | |A |. 20 |100 |$20 |2,000 |400 | |B |. 50 |180 |$25 |4,500 |2,250 | |C |. 0 |210 |$30 |6,300 |1,8900 | | | | jibe judge value |$4,540 | 4. The all in alliance Corp. expects to denounce the fo llowing number of whole of measurements of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated. What is the pass judgment value of the total sales projection? OutcomeProbabilityUnitsPrice A0. 30200$15 B0. 5032030 C0. 2041040 4-4.\r\n ascendent: anyiance Corporation |(1) |(2) |(3) |(4) |(5) |(6) | | | | | | |Expected | | | | | | agree |Value | |Outcome |Probability |Units |Price |Value |(2 ? ) | |A |. 30 |200 |$15 |$3,000 | 900 | |B |. 50 |320 |$30 |9,600 | 4,800 | |C |. 20 |410 |$40 |16,400 | 3,280 | | | | add together expected value |$8,980 | . ER medical exam Supplies had sales of 2,000 social building blocks at $160 per whole populate grade. The marketing manager projects a 25 per centum increase in unit spate this category with a 10 share price increase. Returned production will represent 5 shareage of total sales. What is your illuminate dollar sales projection for this year? 4-5. dissolver: ER Medical Supplies | |Unit volume 2,000 ? 1. 25 |2,500 | | |Price $160 ? . 10 |$176 | | | sum up sales |$440,000 | | |Returns (6%) |22,000 | | | can sales |$418,000 | 6. Cyber Security Systems had sales of 3,000 units at $50 per unit last year.\r\nThe marketing manager projects a 20 part increase in unit volume sales this year with a 10 percent price increase. Returned merchandise will represent 6 percent of total sales. What is your net dollar sales projection for this year? 4-6. Solution: Cyber Security Systems |Unit volume 3,000 ? 1. 20 |3,600 | |Price $50 ? 1. 10 |? 55 | | tally gross revenue |$198,000 | |Returns (6%) |11,880 | |Net gross revenue |$186,120 | 7. Sales for Ross Pro’s Sports Equipment are expected to be 4,800 units for the climax calendar calendar month.\r\nThe company likes to keep open 10 percent of unit sales for each month in conclusion scroll. kickoff inventory is 300 units. How many units should the firm beget for the com ing month? 4-7. Solution: Ross Pro’s Sports Equipment |+ |Projected sales |4,800 |units | |+ | desired termination inventory |480 |(10% ? ,800) | |†|Beginning inventory | 300 | | | |Units to be produced |4,980 | | | | | 8. Digitex, Inc. , had sales of 6,000 units in action.\r\nA 50 percent increase is expected in April. The company will maintain 5 percent of expected unit sales for April in cultivation inventory. Beginning inventory for April was 200 units. How many units should the company produce in April? 4-8. Solution: Digitex, Inc. |+ |Projected sales |9,000 |units (6,000 ? 1. 5) | |+ |Desired decision inventory |450 |units (5% ? ,000) | |†|Beginning inventory | 200 |units | | |Units to be produced |9,250 |units | 9. Hoover Electronics has beginning inventory of 22,000 units, will sell 60,000 units for the coming month, and desires to reduce terminate inventory to 30 percent of beginning inventory. How many units should Hoover produce? 4-9. Solution: Ho over Electronics + |Projected sales |60,000 |units | |+ |Desired ending inventory |6,600 |(30% ? 22,000) | |†|Beginning inventory | 22,000 |units | | |Units to be produced |44,600 |units | 0. On celestial latitude 31 of last year, Barton tenor Filters had in inventory 600 units of its product, which costs $28 per unit to produce. During January, the company produced 1,200 units at a cost of $32 per unit. Assuming Barton form Filters sold 1,500 units in January, what was the cost of goods sold (assume FIFO inventory accounting)? 4-10. Solution: Barton Air Filters | price of goods sold on 1,500 units | | | | | | | | grey-haired inventory: | | | | standard (Units) |600 | | | approach per unit |$ 28 | | | jibe |$ 16,800 | | | | | | | bare-ass inventory: | | | | measuring (Units) |900 | | | embody per unit |$ 32 | | | summarise |$28,800 | | | gibe cost of Goods change |$45,600 | 11. On celestial latitude 31 of last year, Wolfson Corporation had in inventory 400 uni ts of its product, which cost $21 per unit to produce. During January, the company produced 800 units at a cost of $24 per unit. Assuming that Wolfson Corporation sold 700 units in January, what was the cost of goods sold (assume FIFO inventory accounting)? 4-11. Solution: Wolfson Corporation | comprise of goods sold on 700 units | | | | | aging inventory: | | | measuring rod (Units) |400 | | Cost per unit |$ 21 | | descend |$ 8,400 | | | | |New inventory: | | | Quantity (Units) |300 | | Cost per unit |$ 24 | | original |$ 7,200 | | essential Cost of Goods exchange |$15,600 | 12.\r\nAt the end of January, puke Auto Parts had an inventory of 825 units, which cost $12 per unit to produce. During February the company produced 750 units at a cost of $16 per unit. If the firm sold 1,050 units in February, what was its cost of goods sold? a. Assume LIFO inventory accounting. b. Assume FIFO inventory accounting. 4-12. Solution: Lemon Auto Parts a. LIFO Accounting |Cost of goods sold on 1,050 units | | |New inventory: | | | Quantity (Units) |750 | | Cost per unit $ 16 | | Total |$12,000 | |Old inventory: | | | Quantity (Units) |300 | | Cost per unit |$ 12 | | Total |$ 3,600 | |Total Cost of Goods Sold |$15,600 | b. FIFO Accounting Cost of goods sold on 1,050 units | | |Old inventory: | | | Quantity (Units) |825 | | Cost per unit |$ 12 | | Total |$ 9,900 | |New inventory: | | | Quantity (Units) |225 | | Cost per unit |$ 16 | | Total |$ 3,600 | |Total Cost of Goods Sold |$15,600 | 13. lenticular windup(prenominal) Supplies produces a product with the following costs as of July 1, 2009: corporeal$ 6 attention4 hit 2 $12 Beginning inventory at these costs on July 1 was 5,000 units. From July 1 to celestial latitude 1, gibbous produced 15,000 units. These units had a worldly cost of $10 per unit. The costs for labor and command processing overhead time were the same. Convex uses FIFO inventory accounting. Assuming that Convex sold 17,000 units during the last six months of the year at $20 each, what would gross profit be? What is the value of ending inventory? 4-13. Solution: Convex Mechanical Supplies |Sales (17,000 @ $20) | | |$340,000 | | |Cost of goods sold: | | | | | |Old inventory: | | | | | | Quantity (units) |5,000 | | | | | Cost per unit |$ 12 | | | | |Total | |$ 60,000 | | | |New inventory: | | | | | | Quantity (units) |12,000 | | | | | Cost per unit |$ 16 | | | | |Total | |$192,000 | | |Total cost of goods | | | | | |sold | | |$252,000 | | |Gross profit | | |$ 88,000 | | | | | | | | |Value of ending | | | | | |inventory: | | | | | |Beginning inventory | | | | | |(5,000 ( $12) | |$ 60,000 | | | |+ Total production | | | | | |(15,000 ( $16) | |$240,000 | | | |Total inventory | | | | | |useable for sale | |$300,000 | | | |†Cost of good sold | |$252,000 | | | | result inventory | |$ 48,000 | | | |or | | | | | |3,000 units ( $16 = $48,000 | 14. Assume in problem 13 that Convex used LIFO accounting instead of FIFO. What would gross profit be? What is the value of ending inventory? 4-14. Solution: Convex Mechanical Supplies (Continued) |Sales (17,000 @ $20) | | |$340,000 | | |Cost of goods sold: | | | | | |New inventory: | | | | | | Quantity (units) |15,000 | | | | | Cost per unit ….. |$ 16 | | | | |Total ….. |$240,000 | | | |Old inventory: | | | | | | Quantity (units) ….. |2,000 | | | | | Cost per unit ….. |$ 12 | | | | |Total ….. | |$ 24,000 | | | |Total cost of goods | | | | | |sold ….. | | |$264,000 | | |Gross profit ….. | |$ 76,000 | | | | | | | | |Value of ending | | | | | |inventory: | | | | | |Beginning inventory | | | | | |(5,000 ( $12) …… |$ 60,000 | | |+ |Total production | | | | | |(15,000 ( $16) ….. | |$240,000 | | | |Total inventory | | | | | |available for sale ….. | |$300,000 | | |†|Cost of good sold ….. | |$264,000 | | | | terminationing inventory ….. |$ 36,000 | | | |OR | | | | | |3,00 0 units ( $12 = $36,000 | 15. Jerrico Wallboard Co. had a beginning inventory of 7,000 units on January 1, 2008. The costs associated with the inventory were: Material$9. 00 unit comminute5. 00 unit Overhead4. 10 unit During 2004, Jerrico produced 28,500 units with the following costs: Material$11. 50 unit Labor4. 80 unit Overhead5. 20 unit Sales for the year were 31,500 units at $29. 60 each. Jerrico uses LIFO accounting. What was the gross profit? What was the value of ending inventory? 4-15. Solution: Jerrico Wallboard Co. | |Sales (31,500 @ $29. 0) | | |$932,400 | | |Cost of goods sold: | | | | | |New inventory: | | | | | | Quantity (units) |28,500 | | | | | Cost per unit |$ 22. 50 | | | | |Total | |$641,250 | | | |Old inventory: | | | | | | Quantity (units) |3,000 | | | | | Cost per unit |$ 18. 0 | | | | |Total | |$ 54,300 | | | |Total cost of goods | | | | | |sold | | |$695,550 | | |Gross profit | | |$236,850 | | | | | | | | |Value of ending inventory: | | | | | |Beginning i nventory | | | | | |(7,000 ( $18. 10) | |$126,700 | | | |+ Total production | |$641,250 | | | |(28,500 ( $22. 50) | | | | |Total inventory | | | | | |available for sale | |$767,950 | | | |†Cost of good sold | |$695,550 | | | |Ending inventory | |$ 72,400 | | | |OR | | | | | |4,000 units ( $18. 10 = $72,400 | 16. J.\r\nLo’s Clothiers has forecast credit sales for the fourthly quarter of the year as: folk (actual)$70,000 fourth part Quarter October$60,000 November55,000 declination80,000 Experience has shown that 30 percent of sales are collected in the month of sale, 60 percent in the following month, and 10 percent are never collected. effect a schedule of cash expediency for J. Lo’s Clothiers showing the fourth quarter (October through December). 4-16. Solution: J. Lo’s Clothiers | |September |October |November |December | |Credit sales |$70,000 |$60,000 |$55,000 $80,000 | |30% Collected in month of sales | | | | | | | |18,000 |16,500 |24,000 | |6 0% Collected in month by and by | | | | | |sales | |42,000 |36,000 |33,000 | |Total cash pass along | | | | | | | |$60,000 |$52,500 |$57,000 | 17.\r\nVictoria’s lop has forecast credit sales for the fourth quarter of the year as: September (actual)$50,000 Fourth Quarter October$40,000 November35,000 December60,000 Experience has shown that 20 percent of sales are collected in the month of sale, 70 percent in the following month, and 10 percent are never collected. Prepare a schedule of cash receipts for Victoria’s Apparel covering the fourth quarter (October through December). 4-17. Solution: Victoria’s Apparel | |September |October |November |December | |Credit sales |$50,000 |$40,000 |$35,000 $60,000 | |20% Collected in month of sales| | | | | | | |8,000 |7,000 |12,000 | |70% Collected in month later on(prenominal) | | | | | |sales | |35,000 |28,000 |24,500 | |Total cash receipts | | | | | | | |$43,000 |$35,000 |$36,500 | 18. buccaneer Video companion h as make the following sales projections for the adjoining six months. only sales are credit sales. work on$24,000June$28,000 April30,000July35,000 May18,000August38,000 Sales in January and February were $27,000 and $26,000, respectively.\r\nExperience has shown that of total sales, 10 percent are uncollectible, 30 percent are collected in the month of sale, 40 percent are collected in the following month, and 20 percent are collected twain months after sale. Prepare a periodic cash receipts schedule for the firm for March through August. Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later? 4-18. Solution: Pirate Video companionship hard cash service docket | |January |February |March |April | forebodeed unit sales |4,000 |10,000 |8,000 |6,000 | |+Desired ending inventory |15,000 |12,000 |9,000 | | |â€Beginning inventory |6,000 |15,0 00 |12,000 | | |Units to be produced |13,000 |7,000 |5,000 | | | capital Payments | | |Feb |March |April |May | |Units produced |8,000 |13,000 |7,000 |5,000 | |Materials ($7/unit) month after production | | | | | | | |$56,000 |$91,000 |$49,000 | |Labor ($3/unit) month of production | | | | | | | |39,000 |21,000 |15,000 | |Fixed overhead | |10,000 |10,000 |10,000 | |Dividends | | | |14,000 | |Total change Payments | |$105,000 |$122,000 |$88,000 | 21. Dina’s Lamp company has forecast its sales in units as follows: |January |1,000 | |February |800 | |March |900 | |April |1,400 | |May |1,550 | |June |1,800 | |July |1,400 | Dina’s always keeps an ending inventory equal to 120 percent of the next month’s expected sales.\r\nThe ending inventory for December (January’s beginning inventory) is 1,200 units, which is consistent with this policy. Materials cost $14 per unit and are paid for in the month after purchase. Labor cost is $7 per unit and is paid in th e month the cost is incurred. Overhead costs are $8,000 per month. use up of $10,000 is schedule to be paid in March, and employee bonuses of $15,500 will be paid in June. Prepare a monthly production schedule and a monthly digest of cash payments for January through June. Dina produced 800 units in December. 4-21. Solution: Dinas Lamp Company Production account | |Jan. |Feb. March |April |May |June |July | |Forecasted unit sales |1,000 | |900 |1,400 |1,550 |1,800 |1,400 | |+ Desired ending inventory |960 |1,080 |1,680 |1,860 |2,160 |1,680 | | |†Beginning inventory |1,200 | 960 |1,080 |1,680 | 1,860 | 2,160 | | |= Units to be produced |760 |920 |1,500 |1,580 |1,850 |1,320 | | |Summary of hard cash Payments | | |Dec. |Jan. |Feb. |March |April |May |June | |Units roduced |800 |760 |920 |1,500 |1,580 |1,850 |1,320 | |Material cost ($14/unit) month after purchase | | | | | | | | | | |$11,200 |$10,640 |$12,880 |$21,000 |$22,120 |$25,900 | |Labor cost ($5/unit) month incurred | | | | | | | | | | |5,320 |6,440 |10,500 |11,060 |12,950 |$9,240 | |Overhead cost | |8,000 |8,000 |8,000 |8,000 |8,000 |8,000 | |Interest | | | |10,000 | | | | |Employee bonuses | | | | | | |15,500 | |Total bills Payments | |$24,520 |$25,080 |$41,380 |$40,060 |$43,070 |$58,640 | 22. Graham Potato Company has project sales of $6,000 in September, $10,000 in October, $16,000 in November, and $12,000 in December.\r\nOf the company’s sales, 20 percent are paid for by cash and 80 percent are sold on credit. Experience, shows that 40 percent of accounts receivable are paid in the month after the sale, while the remaining 60 percent are paid dickens months after. Determine collections for November and December. in addition assume Graham’s cash payments for November and December are $13,000 and $6,000, respectively. The beginning cash balance in November is $5,000, which is the desired minimal balance. Prepare a cash budget with borrowing needed or repayments for Novembe r and December. (You will need to prepare a cash receipts schedule first. ) 4-22. Solution: Graham Potato Company hard cash benefit Schedule |September |October |November |December | |Sales |$6,000 |$10,000 |$16,000 |$12,000 | |Credit sales (80%) |4,800 |8,000 |12,800 |9,600 | | currency sales (20%) |1,200 |2,000 |3,200 |2,400 | |Collections in month after| | | | | |sales (40%) | | |3,200 |5,120 | |Collections two months | | | | | |after sales (60%) | | |2,880 |4,800 | |Total cash receipts | | | | | | | | |$9,280 |$12,320 | Graham Potato Company (Continued) change work out | |November |December | |Cash receipts |$ 9,280 |$12,320 | |Cash payments |13,000 |6,000 | |Net Cash descend |(3,720) |6,320 |Beginning Cash respite |5,000 |5,000 | |accumulative Cash offset |1,280 |11,320 | |Monthly contribute or (Repayment) |3,720 |(3,720) | | cumulative give end |3,720 |-0- | |Ending Cash eternal rest |$ 5,000 |$ 7,600 | 23. Juan’s wetback Company has restaurants in five col lege towns. Juan wants to expand into Austin and College localise and needs a bank loan to do this. Mr. Bryan, the banker, will finance construction if Juan can present an acceptable three-month financial plan for January through March. pursuit are actual and forecasted sales figures: Actual |Forecast |Additional | | | |Information | |November |$120,000 |January |$190,000 |April forecast |$230,000 | |December |140,000 |February | 210,000 | | | | | |March | 230,000 | | | Of Juan’s sales, 30 percent are for cash and the remaining 70 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 percent are paid in the assist month after the sale. Materials cost 20 percent of sales and are paid for in cash.\r\nLabor set down is 50 percent of sales and is overly paid in the month of sales. Selling and administrative cost is 5 percent of sales and is also paid in the month of sales. Overhead expense is $12,000 in cash per month; depreciation ex pense is $25,000 per month. Taxes of $20,000 and dividends of $16,000 will be paid in March. Cash at the beginning of January is $70,000, and the minimum desired cash balance is $65,000. For January, February, and March, prepare a schedule of monthly cash receipts, monthly cash payments, and a arrest monthly cash budget with borrowings and repayments. 4-23. Solution: Juans Taco Company Cash proceeds Schedule |November |December |January |February |March |April | |Sales |$120,000 |$140,000 |$190,000 |$210,000 |$230,000 |$230,000 | |Credit sales (70%) |84,000 |98,000 |133,000 |147,000 |161,000 |161,000 | |Cash sales (30%) |36,000 |42,000 |57,000 |63,000 |69,000 |69,000 | |Collections (month after credit sales) | | | | | | | |40% | |33,600 |39,200 |53,200 |58,800 |64,400 | |Collections (two months after credit | | | | | | | |sales) 60% | | |50,400 |58,800 |79,800 |88,200 | |Total Cash communicate | | |$146,600 |$175,000 |$207,600 | | 4-23. (Continued)\r\nJuan’s Taco Company C ash Payments Schedule | |January |February |March | |Payments for Material Purchases (20% of current month’s sales) |$ 38,000 |$ 42,000 |$46,000 | |Labor Expense (50% of sales) |95,000 |105,000 |115,000 | |Selling and Admin. Exp. 5% of sales) |9,500 |10,500 |11,500 | |Overhead |12,000 |12,000 |12,000 | |Taxes | | |20,000 | |Dividends | | |16,000 | |Total Cash Payments* |$154,500 |$169,500 |$220,500 | *The $25,000 of depreciation is excluded because it is not a cash expense. 4-23. (Continued) Juan’s Taco Company Cash Budget | |January |February |March | |Total Cash receipts $146,600 |$175,000 |$207,600 | |Total Cash Payments | 154,500 | 169,500 | 220,500 | |Net Cash Flow |(7,900) |5,500 |(12,900) | |Beginning Cash sense of balance |70,000 |65,000 |67,600 | |Cumulative Cash Balance |62,100 |70,500 |54,700 | |Monthly Loan or (repayment) |2,900 |(2,900) |10,300 | |Cumulative Loan Balance |2,900 |-0- |10,300 | |Ending Cash Balance |$ 65,000 |$ 67,600 |$ 65,000 | 24. Hickman Avionics’s actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June through September. |Sales |Purchases | |April (actual) |$410,000 |$220,000 | |May (actual) |400,000 |210,000 | |June (forecast) |380,000 |200,000 | |July (forecast) |360,000 |250,000 | |August (forecast) |390,000 |300,000 | |September (forecast) |420,000 |220,000 | The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales, 20 percent are collected in the month after the sale and 80 percent are collected two months later. Hickman pays for 40 percent of its purchases in the month after purchase and 60 percent two months after. Labor expense equals 10 percent of the current month’s sales. Overhead expense equals $15,000 per month. Interest payments of $40,000 are due in June and September. A cash dividend of $20,000 is plan to be paid in June. Tax payments of $35,000 are due in June and September. There is a schedule capital outlay of $300,000 in September.\r\nHickman Avionics’s ending cash balance in May is $20,000. The minimum desired cash balance is $15,000. Prepare a schedule of monthly cash receipts, monthly cash payments, and a complete monthly cash budget with borrowing and repayments for June through September. The maximum desired cash balance is $50,000. Excess cash (above $50,000) is used to buy marketable securities. Marketable securities are sold onwards borrowing silver in case of a cash shortfall (less than $15,000). 4-24. Solution: Hickman Avionics Cash Receipts Schedule | |April |May |June |July |Aug. |Sept. |Sales |$410,000 |$400,000 |$380,000 |$360,000 |$390,000 |$420,000 | |Credit Sales (90%) |369,000 |360,000 |342,00 |324,000 |351,000 |378,000 | |Cash Sales (10%) |41,000 |40,000 |38,000 |36,000 |39,000 |42,000 | |Collections (month after sale) 20% | | | | | | | | |73,800 |72,000 |68,400 |64,800 |70,200 | |Collections (second month after sale) 80% | | | | | | | | | | | | | | | | | | |295,200 |288,000 |273,600 |259,200 | |Total Cash Receipts | | |$405,200 |$392,400 |$377,400 |$371,400 | 4-24. (Continued) Hickman Avionics Cash Payments Schedule | |April |May |June |July |Aug. |Sept. |Purchases |$220,000 |$210,000 |$200,000 |$250,000 |$300,000 |$220,000 | |Payments (month after purchaseâ€40%) | | | | | | | | | |88,000 |84,000 |80,000 |100,000 |120,000 | |Payments (second month after purchaseâ€60%) | | | | | | | | | | | | | | | | | | |132,000 |126,000 |120,000 |150,000 |Labor Expense | | | | | | | |(10% of sales) | | |38,000 |36,000 |39,000 |42,000 | |Overhead | | |15,000 |15,000 |15,000 |15,000 | |Interest Payments | | |40,000 | | |40,000 | |Cash Dividend | | |20,000 | | | | |Taxes | | |35,000 | | |35,000 | |Capital Outlay | | | | | |300,000 | |Total Cash Payments | | |$364,000 |$257,000 |$274,000 |$702,000 | 4-24. (Continued) Hickman Avionics Cash Budget | |June |July |August |September | |Cash Receipts |$405,200 |$392,400 |$3 77,400 |$371,400 | |Cash Payments |364,000 |257,000 274,000 |702,000 | |Net Cash Flow |41,200 |135,400 |103,400 |(330,600) | |Beginning Cash Balance |20,000 |50,000 |50,000 |50,000 | |Cumulative Cash Balance |61,200 |185,400 |153,400 |(280,600) | |Monthly Borrowing or (Repayment) |†|†|†|*80,600 | |Cumulative Loan Balance |†|†|†|80,600 | |Marketable Securities Purchased |11,200 |135,400 |103,400 |†| | (Sold) | |†|†|250,000 | |Cumulative Marketable Securities |11,200 |146,600 |250,000 |†| |Ending Cash Balance |50,000 |50,000 |50,000 |50,000 | *Cumulative Marketable Sec. (Aug)$250,000 Cumulative Cash Balance (Sept)â€280,600\r\nRequired (ending) Cash Balance 50,000 Monthly Borrowingâ€$80,600 25. Carter blushing mushroom Company has plants in nine midwestern states. Sales for last year were $100 cardinal, and the balance sheet at year-end is similar in percentage of sales to that of anterior years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary like a shot with sales. BALANCE SHEET (in $ millions) AssetsLiabilities and Stockholders’ Equity Cash$ 5Accounts due$15 Accounts receivable15Accrued wages6 Inventory30Accrued taxes4 menstruum assets50 Current liabilities25 Fixed assets 40Notes payable30 super acid stock15\r\n bear earnings 20 Total liabilities and Total assets$90 stockholders’ equity$90 Carter cay has an aftertax profit margin of 5 percent and a dividend payout ratio of 30 percent. If sales grow by 10 percent next year, determine how many dollars of new funds are needed to finance the expansion. (Assume Carter Paint is already using assets at full mental ability and that plant must be added. ) 4-25. Solution: Carter Paint Company [pic] [pic] [pic] [pic] [pic][pic] [pic] 26. Jordan Aluminum Supplies has the following financial statements, which are representative of the company’s historical average. Income ar guing Sales$300,000 Expenses 247,000\r\nEarnings before interest and taxes$ 53,000 Interest 3,000 Earnings before taxes$ 50,000 Taxes 20,000 Earnings after taxes$ 30,000 Dividends$ 18,000 Balance Sheet AssetsLiabilities and Stockholders’ Equity Cash $ 8,000Accounts payable$ 6,000 Accounts receivable20,000Accrued wages2,000 Inventory62,000Accrued taxes4,000 Current assets$ 90,000 Current liabilities$ 12,000 Fixed assets 100,000Notes payable10,000 Long-term debt20,000 Common stock80,000 Retained earnings68,000 Total liabilities and Total assets $190,000 stockholders’ equity$190,000 Jordan is expecting a 20 percent increase in sales next year, and management is concerned about the company’s need for extraneous funds.\r\nThe increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the subsisting stores. Among liabilities, only current liabilities vary directly with sales. use the percent-of-sales method, determine whether Jordan Aluminum has external financing needs. (Hint: A profit margin and payout ratio must be found from the income statement. ) 4-26. Solution: Jordan Aluminum Supplies [pic] Change in Sales = 20% ? $300,000 = $60,000 Spontaneous Assets = Current Asserts = Cash + Acc. Rec. + Inventory Spontaneous Liabilities = Acc. Payable + Accr. Wages + Accr. Taxes [pic] The firm needs $1,200 in external funds. 27. Cambridge Prep shop ats, a national clothing chain, had sales of $200 million last year.\r\nThe business has a steady net profit margin of 12 percent and a dividend payout ratio of 40 percent. The balance sheet for the end of last year is shown below. Balance Sheet End of Year (in $ millions) AssetsLiabilities and Stockholders’ Equity Cash$ 10Accounts payable$ 15 Accounts receivable15Accrued expenses5 Inventory50Other payables40 Plant and equipment 75Common stock30 Retained earnings 60 Total liabilities and Total assets$150 stockholde rs’ equity$150 Cambridge’s marketing staff tells the president that in this coming year there will be a large increase in the demand for whiteness sport coats and various shoes. A sales increase of 15 percent is forecast for the Prep Shop.\r\nAll balance sheet items are expected to maintain the same percent-of-sales relationships as last year*, omit for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember the net profit margin is 12 percent. ) a. Will external financing be required for the Prep Shop during the coming year? b. What would be the need for external financing if the net profit margin went up to 14 percent and the dividend payout ratio was increased to 70 percent? Explain. * This included fixed assets are the firm is at full capacity. 4-27. Solution: Cambridge Prep Shops a. [pic] [pic] [pic] [pic ]\r\nA negative figure for required new funds indicates that an excess of funds ($3. 06 mil. ) is available for new investment. No external funds are needed. b. [pic] [pic] The net profit margin increased slightly, from 12% to 14%, which decreases the need for external funding. The dividend payout ratio increased tremendously, however, from 40% to 70%, necessitating more external f\r\n'