Question

ACC 2301 Project 3 Budget Exercise

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. Sincealloftheordersarecustommade,noinventoryiskeptonhandattheendofthe 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 $6,000 in cash.

h. Theywouldliketomaintainaminimumcashbalanceof$2,500attheendofeachmonth. Thecompanyhasanagreementwithalocalbankthatallowsthemtoborrow,withatotalline 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. Theownermakesadrawof$3,000everymonth.(Note:soleproprietorsand 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

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. What is the projected beginning cash balance for Month 1? A. $0 B. $7,500 C. $300 D. $2,500

12. What is the projected ending cash balance for Month 1? A. $2,500 B. $1,100 C. $8,000 D. None of the above

13. Will Bobcat Printing need to borrow money in Month 1? A. Yes B. No

14. 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. $500 B. $1,300 C. $1,800 D. Does not borrow money

15. 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

16. Bobcat Printing will have a cash surplus in Month 2. A. True B. False

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

18. Bobcat Printing will have cash shortage in Month 3. A. True B. False

19. Bobcat Printing will need to borrow money in Month 3. A. True B. False

20. How much will Bobcat Printing borrow in Month 3? A. Bobcat Printing will not have a projected cash shortage in Month 3, thus it will not borrow money B. $1,300 C. $1,643 D. $2,500

Answer 1

		Cash Budget		Month
				1	2	3
	Beginning cash balance			0	2500	3687
	Add: Total cash receipts (Note:1)			12000	23000	26200
	Total cash available (A)			12000	25500	29887
	Cash payments for:
	Inventory Purchase (Note:2)			0	9000	11250
	Donations (10% of sales)			2000	2500	2700
	Advertising (3% of sales)			600	750	810
	Miscellaneous (1% of sales)			200	250	270
	Rent			5000	5000	5000
	Building purchase			0	0	6000
	Drawings			3000	3000	3000
	Interest expenses			0	13
					(1300*1%)
	Total cash payments (B)			10800	20513	29030
	Preliminary cash balance (A)-(B)			1200	4987	857
	Additional loan/(Loan repayment)			1300	-1300	1643
	Ending cash balance			2500	3687	2500
	Note:1-Total cash receipts
				1	2	3
	Sales			20000	25000	27000
	Collection
	60% in the month of the sale			12000	15000	16200
	40% in the month following the sale				8000	10000
	Total cash receipt			12000	23000	26200
	Note:2 Cash paymant towards purchases
	Since there is no inventory,Cost of goods sold=Purchase
				1	2	3
	Sales			20000	25000	27000
	Cost of goods sold (45% of sales)			9000	11250	12150
	paid in full in the month following the purchase				9000	11250
10	Projected cash payments for SG&A expense:
				1	2	3
	Donations (10% of sales)			2000	2500	2700
	Advertising (3% of sales)			600	750	810
	Miscellaneous (1% of sales)			200	250	270
	Rent			5000	5000	5000
	Total			7800	8500	8780	25080
	Answer is C. $25080
11	A. $ 0 (Since this is the first year operation)
12	A. $2500
13	A. Yes
14	B. $1300
15	C. $13
16	A. True
17	C. $1300
18	A. True
19	A. True
20	C. $1,643