Problem 5-35
Oriole Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast.
Month
Sales
Month
Sales
January
$905,500
July
$1,503,100
February
$1,000,200
August
$1,503,100
March
$905,500
September
$1,602,600
April
$1,154,900
October
$1,602,600
May
$1,254,900
November
$1,503,100
June
$1,407,800
December
$1,707,000
Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.
●
All sales are made on credit.
●
Oriole’s excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale.
●
Cost of goods sold, Oriole’s largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased.
●
All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase.
●
Hourly wages and fringe benefits, estimated at 30% of the current month’s sales, are paid in the month incurred.
●
General and administrative expenses are projected to be $1,561,500 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.
Salaries and fringe benefits
$
320,000
Advertising
376,300
Property taxes
144,600
Insurance
191,800
Utilities
180,100
Depreciation
348,700
Total
$
1,561,500
●
Operating income for the first quarter of the coming year is projected to be $320,000. Oriole is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter.
●
Oriole maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $56,800.
Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)
Cash Receipts Budget
April
May
June
Total Cash Receipts
February sales
$
$
$
$
March sales
April sales
May sales
Totals
$
$
$
$
Accounts Receivable balance at the end of second quarter of 2015
$
Prepare the purchases budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)
Purchases Budget
April
May
June
Total Purchases
April COGS
$
$
$
$
May COGS
June COGS
July COGS
Totals
$
$
$
$
Prepare the cash payments budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)
Cash Payments Budget
April
May
June
March purchases
$
$
$
April purchases
May purchases
June purchases
$
$
$
Accounts Payable balance at the end of second quarter of 2015
$
Prepare the cash budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)
Cash Budget
April
May
June
Quarter
Beginning Cash balance
$
$
$
$
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Total cash available to spend disbursements Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (needed) Total financing
Add: Less:
Total cash available to spend disbursements Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (needed) Total financing
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Total cash available to spend disbursements Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (needed) Total financing
Total cash available to spend disbursements Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (needed) Total financing
Total cash available to spend disbursements Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (needed) Total financing
Total cash available to spend disbursements Total cash disbursements Cash excess (deficiency) Minimum cash balance Cash excess (needed) Total financing
Financing:
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for inventory Wages Salaries Advertising Property taxes Insurance Utilities Income taxes Borrowings Repayments Interest
Collection from Sales Payments for i
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