Question

Bobcat Printing makes custom t---shirts and other promotional products for student

organizations and businesses. It is beginning its first year of operations and needs to

plan for its first quarter of operations. They would like to maximize their profits, and

understand that accurate budgeting can help achieve that goal. The budgets will be

prepared based on the following information:

a. Sales are budgeted at $20,000 for Month 1, $25,000 for Month 2, and $27,000 for

Month 3. All sales will be done on account. Company does not expect to have any

cash sales.

b. Sales are collected 60% in the month of the sale, and 40% in the month following

the sale.

c. Cost of Goods Sold is budgeted at 45% of Sales

d. Monthly selling, general, and administrative expenses are as follows: donations are

10% of sales; advertising is 3% of sales; miscellaneous is 1% of sales; and rent is

$5,000 per month. All SG&A expenses are paid in the month they are incurred.

e. Since all of the orders are custom made, no inventory is kept on hand at the end of the month.

f. Inventory purchases are paid in full in the month following the purchase.

g. BobcatPrinting is planning to purchase a building in Month 3 for $6,000 in cash.

h. They would like to maintain a minimum cash balance of $2,500 at the end of each month.

The company has an agreement with a local bank that allows them to borrow, with a total line of credit of $20,000. The interest rate on these loans is 1% per month (12%annual).The would as far as able, repay the loan on the last day of the month when it has enough cash to pay the full balance and maintain an adequate ending cash balance.

i. The owner makes a draw of $3,000 every month. (Note: sole proprietors and

partnerships take owner’s draws, while stockholders receive dividends). Based upon

the information provided, complete the operating budgets provided in the excel

template, and answer the questions in TRACS. When making calculations always

round up (for example: 33 × 7% = 2.31, round up to 3.00).

Check Figures:

Gross Margin $39,600

Total assets $19,300

Ending Retained Earnings $5,507

1. Which budget must be completed before other budgets can be created?

A. The Cash Budget

B. The Sales Budget

C. The SG&A Budget

D. The Pro Forma Financial Statements

2. What is the total projected sales for the first quarter of operations?

A. $20,000

B. $45,000

C. $72,000

D. $61,200

3. How much cash does Bobcat Printing expect to collect in the first quarter of operations?

A. $26,200

B. $43,200

C. $72,000

D. $61,200

4. To what can we attribute the difference between projected total sales and projected cash received in the first quarter of operations?

A. An allowance for doubtful accounts is used because with credit sales, some customers may not make payment.

B. Bobcat Printing pays it liabilities 30 days after purchase.

C. The Conservatism Concept requires us to understate total assets and understate expenses.

D. Bobcat Printing collects part of its sales one month after the original sale.

5. What are budgeted cash payments for inventory purchases in the first quarter of operations?

A. $11,250

B. $36,000

C. $20,250

D. $32,400

6. What is the total budgeted Cost of Goods Sold for the first quarter of operations?

A. $28,600

B. $12,150

C. $20,250

D. $32,400

7. To what can we attribute the difference between budgeted cost of goods sold and projected cash payments for inventory in the first quarter of operations?

A. Bobcat Printing sells its inventory in the month of purchase, and pays for its inventory one month following purchase.

B. Customers do not pay for the goods it purchases until 30 days after the date of purchase.

C. Due to the Matching Concept, cash sales require payments for inventory in the month they occur.

D. There is no difference between the cost of goods sold and cash payments.

8. What is another name for cost of goods sold?

A. Period cost

B. Capitalize cost

C. Overhead cost

D. Product cost

9. What is the total budgeted SG&A expense for the quarter?

A. $13,440

B. $25,080

C. $7,000

D. $8,780

10. What is the total projected cash payments for SG&A expense?

A. $15,000

B. $7,000

C. $25,080

D. $8,780

11. Are there A/R cash collections during the first month of the Sales Budget?

A. There should be A/R cash collections for the first month of the Sales budget.

B. None of the above are true.

C. It is the first month of operations, so there are no prior credit sales.

D. Due to the cash method, cash collections from A/R do not begin until the second month of the quarter.

12. What is the projected beginning cash balance for Month 1?

A. $0

B. $7,500

C. $300

D. $2,500

13. What is the projected ending cash balance for Month 1?

A. $2,500

B. $1,100

C. $8,000

D. None of the above.

14. Will Bobcat Printing need to borrow money in Month 1?

A. Yes

B. No

15. If you answered "Yes" that Bobcat Printing had to borrow money in the first month, how much money will it need to borrow to ensure it does not have a cash shortage?

A. Bobcat Printing does not borrow in the first month.

B. $1,800

C. $500

D. $1,300

16. If Bobcat Printing borrowed money in Month 1, what is the projected interest expense it will incur for borrowing the money?

A. $130

B. Bobcat Printing will not have interest because it does not need to borrow money in Month 1.

C. $13

D. $170

E. $14

17. Bobcat Printing will have a cash surplus in Month 2.

True

False

18. If Bobcat Printing has a projected cash surplus in Month 2, how much cash will it repay for borrowing on its line of credit?

Bobcat Printing will not have a cash surplus, therefore it will need to borrow more money in

Month 2.

B. $1,100

C. $1,300

D. $1,800

19. Bobcat Printing will have cash shortage in Month 3.

True

False

20. Bobcat Printing will need to borrow money in Month 3.

True

False

21. How much will Bobcat Printing borrow in Month 3?

A. $1,643

B. $1,300

C. Bobcat Printing will not have a projected cash shortage in Month 3, thus it will not borrow money

D. $2,500

22. What is the projected gross profit for the first quarter of operations?

A. $14,507

B. $29,300

C. $57,900

D. $39,600

23. What is the projected interest expense for the first quarter of operations?

A. $34

B. $170

C. $13

D. $19

24. What is the projected net income the first quarter of operations?

A. $7,650

B. $14,507

C. $13,200

D. $23,373

25. What is the projected beginning capital investment for the first quarter of operations?

A. $0

B. Cannot be determined

C. $3,985

D. $1,500

26. What is the projected total owner's equity for the first quarter of operations?

A. $14,507

B. $5,507

C. $2,973

D. $12,000

27. What is the projected ending cash balance for the first quarter of operations?

A. $12,846

B. $3,846

C. $2,500

D. $0

28. What is the projected accounts receivables balance for the first quarter of operations?

A. $10,800

B. $27,000

C. $12,000

D. $13,500

29. What is the projected account payable for the first quarter of operations?

A. $20,250

B. $12,150

C. $0

D. $9,100

30. What is the projected interest payable for the first quarter of operations?

A. $34

B. $19

C. $13

D. $0

31. What is the projected net cash flow from operating activities for the first quarter of operations?

A. $12,000

B. $22,800

C. $10,800

D. $15,857

32. What is the projected net cash flow for investing activities for the first quarter of operations?

A. $6,000

B. ($9,000)

C. $9,000

D. ($6,000)

33. What is the projected cash flow from financing activities for the first quarter of operations?

A. ($2,500)

B. $9,000

C. ($7,357)

D. $7,357

E. ($9,000

Answer 1

Solution:

1. Which budget must be completed before other budgets can be created? – the correct option is B. The sales budget

Sales budget must be completed before other budgets because all other budget is dependent on the sales budget.

2. What is the total projected sales for the first quarter of operations? – The correct option is C. $72,000

	Projected Sales
Month 1	$20,000
Month 2	$25,000
Month 3	$27,000
Quarter Projected Sales	$72,000

3. How much cash does Bobcat Printing expect to collect in the first quarter of operations? – Correct option is D. $61,200

			Cash Collection
	Projected Sales	Cash Collection %	Month 1	Month 2	Month 3	Quarter
Month 1	$20,000	60%	$12,000
Month 1	$20,000	40%		$8,000
Month 2	$25,000	60%		$15,000
Month 2	$25,000	40%			$10,000
Month 3	$27,000	60%			$16,200
			$12,000	$23,000	$26,200	$61,200

4. To what can we attribute the difference between projected total sales and projected cash received in the first quarter of operations? – The correct option is D. Bobcat Printing collects part of its sales one month after the original sale.

40% sales are collected in the next month.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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