Question

In: Accounting

Bobcat Printingmakes customt---shirts and other promotional productsforstudent organizations and businesses. It is beginning its first year...

Bobcat Printingmakes customt---shirts and other promotional productsforstudent 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 $30,000 for Month 1, $32,500 for Month 2, and $34,000 for Month 3. All sales will be done on account. Company does not expect to have any cash sales.

b. Sales are collected 50% in the month of the sale, and 50% in the month following the sale.

c. Cost of Goods Sold is budgeted at 40% 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. Bobcat Printing is planning to purchase a building in Month 3 for $8,000 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). They 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 $5,000 every month. (Note: sole proprietors and partnerships take owner’s draws, while stockholders receive dividends). When making calculations always round up (for example: 33 × 7% = 2.31, round up to 3.00). Gross Margin $57,900 Total assets $27,973 Ending Retained Earnings $14,373

Questions

22 . What is the projected gross profit for the first quarter of operations? A. $32,500 B. $27,900 C. $29,300 D. $57,900

23 . What is the projected interest expense for the first quarter of operations? A. $170 B. $14 C. $34 D. $17

24 . What is the projected net income the first quarter of operations? A. $14,446 B. $7,650 C. $13,200 D. $29,373

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. $14,373 B. $6,240 C. $2,973 D. $12,000

27. What is the projected ending cash balance for the first quarter of operations? A. $12,846 B. $2,973 C. $0 D. $3,846

Solutions

Expert Solution

22. Correct Option is

D. $57900

Gross profit = ( 30000 + 32500 + 34000) * 0.60 = 57900

23.Correct Option is

D. $17

Interest = 1700 loan taken * 1/100 = $ 17

1 2 3
Collection in the month of sale $      15,000.00 $      16,250.00 $        17,000.00
Collection in next month $                  -   $      15,000.00 $        16,250.00
Total cash collection $      15,000.00 $      31,250.00 $        33,250.00
Expenses
COGS = Purchases $                  -   $      12,000.00 $        13,000.00
Other expenses
(10+3+1= 14% of sales) $        4,200.00 $        4,550.00 $          4,760.00
Rent $        5,000.00 $        5,000.00 $          5,000.00
Purchase of building $          8,000.00
Drawings $        5,000.00 $        5,000.00 $          5,000.00
Interest Expense   $             17.00
Total cash paid $      14,200.00 $      26,567.00 $        35,760.00
Surplus / (-) deficit $           800.00 $        4,683.00 $         -2,510.00
Beginning balance in cash $                  -   $        2,500.00 $          5,483.00
Ending balance in cash $           800.00 $        7,183.00 $          2,973.00
Loan taken / (-) repaid $        1,700.00 $      -1,700.00 $                     -  
Ending balance (after adjust) $        2,500.00 $        5,483.00 $          2,973.00

24. Correct Option is

D. $29,373

Gross Profit $      57,900.00
Expenses
Selling and Administration $      13,510.00
Rent $      15,000.00
Interest $             17.00
Net Income $      29,373.00

25. Correct Option

A. 0

Firm is running in rented premices, no inventory balances, Purchases are paid in following month, expenses are not paid in advance. So there is no need for beginning capital investment.

26. Correct Option

A. $14,373

Net income - Drawings = $29,373- (5000 * 3 ) = $14,373

27. Correct Option is

B. $2973


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