Question

In: Accounting

MAMMA MIA, INC. Cash Budgeting Mamma Mia, a company selling vintage branded items through a network...

MAMMA MIA, INC.

Cash Budgeting

Mamma Mia, a company selling vintage branded items through a network of retailers in Illinois, has recently

implemented a budgeting system

Presented below is a month-wise income statement from August throough December 2017.

July and August are actual results, while October

through December are Plan/Budget numbers

Monthly Income Statement

Amounts in $'000s

ACTUAL

PLANNED/ BUDGETED

Aug-2017

Sep-2017

Oct-2017

Nov-2017

Dec-2017

Total Q4

Sales

           380

           390

           400

           430

           480

        1,310

Cost of goods sold

           260

           268

           210

           220

           245

           675

Gross Profit

           120

           122

           190

           210

           235

           635

Less: Selling, General and Admin expenses

               -  

Marketing Expenses

              14

              15

              12

              14

              12

              38

Sales Commission

              11

              12

              12

              13

              14

              39

Administration expenses

              40

              42

              30

              32

              38

100

             65

              69

              54

              59

              64

177

Net Income Before taxes

              55

              53

136

151

171

458

Provision for Income Taxes

15

14

37

41

46

124

Net income After Taxes

              40

              39

              99

110

125

334

Additional information is provided as follows:

Sales numbers are based on the Sales Budget, which includes an assumption that 20% of net sales are

to customers who avail of cash discounts of 10%

Out of credit sales, it is assumed that 60% is collected in the following month and 38% in the month after that.

2% will be uncollectible.

3. All purchases and related costs are from a central distributor, who provides 60-day credit.

4. Marketing expenses and selling commissions are paid monthly in arrears

5. Assume all Administration expenses are paid in the same month as they are incurred

6. Taxes are paid twice annually, in January and July

7. Cash balance on Sep 30, 2017 is 700,000

Q1. Prepare a Monthly Cash Budget for the 4th quarter of 2017

Q2. A loan covenant with First Chicago Bank requires that cash balance be at least $1 MM as of Dec 31, 2017.

Using just the Plan/Budget data, what is the likelihood that the loan covenant will pose a problem for

the Company?

     b) Examining and considering all available data, how would your answer change?

Solutions

Expert Solution

Hi

Answer to this is attached in snips.

With given information, company would not meet $ 1Mn cash requirement on Dec 31, 2017.


Related Solutions

Mamma Mia, a company selling vintage branded items through a network of retailers in Illinois, has...
Mamma Mia, a company selling vintage branded items through a network of retailers in Illinois, has recently implemented a budgeting system Presented below is a month-wise income statement from August through December 2017. August and September are actual results, while October through December are Plan/Budget numbers         Monthly Income Statement Amounts in $'000s ACTUAL PLANNED/ BUDGETED Aug-2017 Sep-2017 Oct-2017 Nov-2017 Dec-2017 Total Q4 Sales            380            390            400            430            480         1,310 Cost of goods sold...
MAMMA MIA, INC. Cash Budgeting ** Please show calculations Mamma Mia, a company selling vintage branded...
MAMMA MIA, INC. Cash Budgeting ** Please show calculations Mamma Mia, a company selling vintage branded items through a network of retailers in Illinois, has recently implemented a budgeting system Presented below is a month-wise income statement from August through December 2017. July and August are actual results, while October through December are Plan/Budget numbers Monthly Income Statement Amounts in $'000s ACTUAL PLANNED/ BUDGETED Aug-2017 Sep-2017 Oct-2017 Nov-2017 Dec-2017 Total Q4 Sales            380            390            400            430...
ABC Company is a leading showroom in selling branded Cars. The showroom is displaying automatic and...
ABC Company is a leading showroom in selling branded Cars. The showroom is displaying automatic and manually operated cars. The automatic model cars are usually purchased by the software engineers and the businessmen. It is observed that the customers who come to purchase the cars would usually come with their family, friends and relatives. It is identified that some of the customers are interested in purchasing cars through bank loans. The sales will be highest during the year-end and festival...
no copy paste please ABC Company is a leading showroom in selling branded Cars. The showroom...
no copy paste please ABC Company is a leading showroom in selling branded Cars. The showroom is displaying automatic and manually operated cars. The automatic model cars are usually purchased by the software engineers and the businessmen. It is observed that the customers who come to purchase the cars would usually come with their family, friends and relatives. It is identified that some of the customers are interested in purchasing cars through bank loans. The sales will be highest during...
Brady, Inc. is in the process of budgeting cash inflows for the next three months. Cash...
Brady, Inc. is in the process of budgeting cash inflows for the next three months. Cash sales are 10 percent of total sales each month. Historically, sales on account have been collected as follows: 70 percent in the month of sale, 25 percent in the month after the sale, and the remaining 5 percent two months after the sale. Sales for the next three months are projected as follows: April, $192,000; May, $210,000; and June, $220,000. Accounts receivable on March...
1. RV Company agrees to buy a certain quantity of vintage campers from Sales Inc. Their...
1. RV Company agrees to buy a certain quantity of vintage campers from Sales Inc. Their contract limits consequential damages for lost profits resulted from the use of the goods. This limit is not neccessarily unconscionable because A. Consequential damages cover only reasonable foreseeable losses B. the transaction is a sale, not a lease C. the loss would be commercial in nature D. lost profits are indirect losses 2. In a letter-of-credit transaction, Unum Inc., a U.S. firm, delivers a...
The data provides the description for three items (C1, C2, and C3) produced by a company and the selling price of each of these items.
IM1IM2IM3IM4IM5C131012C200368C323232Sell Price$          235.80$     1,325.69$          814.28IM1IM2IM3IM4IM5Available Quantities460300100450950Cost per 1 of Each$                   3.38$               30.48$                35.86$                   140.00$                         3.00The data provides the description for three items (C1, C2, and C3) produced by a company and the selling price of each of these items. A combination of 5 input materials (IM) are required to produce each item. The quantity of each material required to produce one unit of an item is shown, along with the cost of each input material, and the quantity of each...
Home Shopping Network, Inc., pioneered the idea of merchandising directly to customers through cable television. The...
Home Shopping Network, Inc., pioneered the idea of merchandising directly to customers through cable television. The Network hired a new show hostess for their cosmetic products at the beginning of this year. The marketing director of the Network wants to know whether the average sales of the cosmetic products has increased after the new show hostess was hired. The director selected a random sample of 40 viewers, and examined their spending on the cosmetic products during the holiday season of...
Budgeting Cash Flow The following various elements relate to Whitfield, Inc.’s cash budget for April of...
Budgeting Cash Flow The following various elements relate to Whitfield, Inc.’s cash budget for April of the current year. For each item, determine the amount of cash that Whitfield should receive or pay in April. a. At $28 each, unit sales are 5,000 and 6,000 for March and April, respectively. Total sales are typically 40% for cash and 60% on credit; 30% of credit sales are collected in the month of sale, with the balance collected in the following month....
Cash As Cash Can (CACC) Corp. and Internal Items Inc. (III) 20are in the same risk...
Cash As Cash Can (CACC) Corp. and Internal Items Inc. (III) 20are in the same risk class. Shareholders expect CACC to pay a USD 5 dividend next year (D1) at which time the stock will sell at an ex-dividend price (P1) of USD 20/share. III does not pay a dividend but III’s shareholders expect a USD 5 capital gain at the end of next year. Currently, III’s stock is selling for USD 20/share (P0). Also assume that all dividends and...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT