Sales, production, purchases, and cash budgets Freese, Inc., is in the process of preparing the fourth quarter budget for 2013, and the following data have been assembled:

Problem 14.23 LO 4, 5, 8

The company sells a single product at a price of $60 per unit. The estimated sales volume for the next six months is as follows:

September ................................................................13,000 units

October .....................................................................12,000 units

November...................................................................14,000 units

December...................................................................20,000 units

January........................................................................9,000 units

February.....................................................................10,000 units

All sales are on account. The company's collection experience has been that 32% of a month's sales are collected in the month of sale. 64% are collected in the month following the sale, and 4% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e. accounts receivable less allowance for uncollectible accounts) will be $499,200 on September 30, 2013.

Management's policy is to maintain ending finished goods inventory each month at a level equal ton 40% of the next month's budgeted sales. The finished goods inventory on September 30, 2013, is expected to be 4,800 units.

To make one unit of finished produce, 5 pounds of materials are required. Management's policy is to have enough materials on hand at the end of each month to equal 30% of the next month's estimated usage. The raw materials inventory is expected to be 19,200 pounds on September 30, 2013.

The cost per pound of raw material is $4, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $75,960 on September 30, 2013.

1. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2013.

2. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2013.

3. Prepare a production budget in units, by month and in total, for the fourth quarter of 2013.

4. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2013.

5. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2013.

Sales, production purchases, and cash budgets Freese, Inc., is in the process of preparing the fourth quarter budget for 2013, and the following data have been assembled:

• The company sells a single product at a price of $60 per unit. The estimated sales volume for the next six months is as follows:

Problem 14.24 LO 4, 5, 8

September. ..................................13,000 units

October. ..................................12,000 units

November. ..................................14,000 units

December. ..................................20,000 units

January. ..................................9,000 units

February. ..................................10,000 uhits

All sales are on account. The company’s collection experience has been
that 32% of a month’s sales are collected in the month of sale, 64% are collected in the month following the sale, and 4% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allow- ance for uncollectible accounts) will be $499,200 on September 30, 2013.

Management’s policy is to maintain ending finished goods inventory each month at a level equal to 40% of the next month’s budgeted sales. The fin- ished goods inventory on September 30, 2013, is expected to be 4,800 units.

To make one unit of finished product, 5 pounds of materials are required. Management’s policy is to have enough materials on hand at the end of each month to equal 30% of the next month’s estimated usage. The raw materials inventory is expected to be 19,200 pounds on September 30, 2013.

The cost per pound of raw material is $4, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $75,960 on September 30, 2013.

Required:

1. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2013.

2. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2013.

3. Prepare a production budget in units, by month and in total, for the fourth quarter of 2013.

4. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2013.

5. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2013.

Omar Inc. manufactures an advanced swim fin for scurba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget. The marketing department has estimated sales in units as follows for the remainder of the year. June 6,500 July 5,400 August 7,200 September 4,600 October 3,800

1. The selling price of the swim fins is $35 per pair.

2. All sales are on account. Based on the experience, the company has learned that 40% of a month’s of sales are collected in the month of sale, another 50% are collected in the month following sale, and the remaining 10% are collected in the second month of sale. May sales totaled $ 105,000 and June Sales $227,500.

3. The finished goods inventory on hand at the end of each month must be equal to 15% of the next month’s sales. The finished goods inventory on hand in June 30, is budgeted to be $810. 4. Each pair of swim fins requires 3 pounds of geico compound. The company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following month’s production needs. The inventory of geico compound on hand on June 30 is budgeted to be 3,402 pounds and inventory on hand on September 30 is budgeted to be 2,280 pounds.

5. Geico compound costs $0.40 per pound. You are required to prepare the following budgets using the information given in the question below to answers the questions

1. Budgeted sales in Dollars

2. Schedule of Expected cash collection

3. Production Budget

4. Direct Material Budget You are required to add the following information:

1. What is the sale for the third quarter?

2. What is the amount of account receivables?

3. What is the total cash collection for the third quarter?

4. What is the ending inventory on September 30?

5. What is the total units of production for quarter?

6. What is the total Raw material purchased for the quarter?

7. What is the total cost of Raw material for the third quarter?

The following projections relate to two recently merged firms:

Revenue = $7,280,000
Cost of Goods Sold (without operating synergy) = 88% of revenue
Cost of Goods Sold (with operating synergy) = 85% of revenue
Depreciation Expense (not included in the Cost of Goods Sold) = $380,000
Tax Rate = 40%
Change in Working Capital = $26,000
Capital Spending = $220,000
Cost of Capital = 12.50%
Expected perpetual growth rate = 4.50%

After achieving operating synergy, the combined firms can reduce the cost of capital to 12.00% by adding long-term debt. What will be the value of the financial synergy created by moving to this improved capital structure?

Select one:

A. $467,667

B. $548,996

C. $654,879

D. None of the above

1. Which of the following will not tend to happen if the U.S. dollar depreciates against the euro?

Multiple Choice

Europeans will find U.S. goods become less expensive in euro terms.

Many Europeans will switch and buy their own products instead of imports from the U.S.

Many Americans will switch and buy domestic goods instead of imports from Europe.

Americans will find European goods become more expensive in dollar terms.

2. The determinants of aggregate supply

Multiple Choice

explain why real domestic output and the price level are directly related.

are consumption, investment, government, and net export spending.

include resource prices and resource productivity.

explain the three distinct ranges of the aggregate supply curve.

Amy Richardson had been a well-paid sales manager of a major hotel chain for 15 years. Due to a hotel owner's illness, Amy was offered the opportunity to purchase a hotel near a seaside vacation area she had often visited. After obtaining a lawyer and a financial accountant to assist her, Amy did an analysis of the most recent financial statements of the hotel. Since the hotel had consistently shown a profit during the past few years, Amy thought that the price of the hotel was reasonable, so she decided to purchase the hotel. She resigned her position, obtained a loan, and purchased the hotel.

During the first year as a hotel manager, Amy received an offer from a tour operator who proposed to guarantee a considerable number of room reservations, including during the off-season. However, she turned down the offer because the tour operator asked for a 20% price reduction compared to the regular room rate. A few weeks later, she decided to shut down the restaurant, located in the main building of the hotel, in order to save expenses. With regard to general expenses, she was particularly concerned with the high room cleaning and service costs. On the sales side, although the reservations for the cheaper standard rooms were a bit sluggish, the more expensive large-size superior rooms had a very good occupancy rate of over 90%.

The following year, there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work. Amy ran short of cash, became emotionally distraught, and eventually had to sell the hotel at a significant loss.

Prepare a cash budget for the first four quarters after Amy’s purchase of the hotel with any data you can imagine or find on the internet. To answer the question, invent some basic cost and revenue data. Enter the numbers directly in the table below. The table of the cash budget itself should not exceed 15-20 lines. In addition to that, make sure to explain your underlying assumptions and comment on the results in the space provided below the table.

• calculation of cash receipts, including assumptions and comments;
• calculation of cash disbursements, including assumptions and comments;
• for overall coherence / form, and overall conclusions/comments

Cash Budget for the first four quarters:

Add additional lines as needed.

The president of Vacuity, Inc., has just approached the company's bank seeking short-term financing for the coming year, Year 2. Vacuity is a distributor of commercial vacuum cleaners. The bank has stated that the loan request must be accompanied by a detailed cash budget that shows the quarters in which financing will be needed, as well as the amounts that will be needed and the quarters in which repayments can be made. To provide this information for the bank, the president has directed that the following data be gathered from which a cash budget can be prepared: a. Budgeted sales and merchandise purchases for Year 2, as well as actual sales and purchases for the last quarter of Year 1, are as follows: Sales Merchandise Purchases Year 1: Fourth quarter actual $250,000 $150,000 Year 2: First quarter estimated $350,000 $230,000 Second quarter estimated $450,000 $280,000 Third quarter estimated $550,000 $340,000 Fourth quarter estimated $430,000 $210,000 b. The company typically collects 48% of a quarter’s sales before the quarter ends and another 50% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the actual data for the Year 1 fourth quarter. c. Some 20% of a quarter's merchandise purchases are paid for within the quarter. The remainder is paid in the following quarter. d. Selling and administrative expenses for Year 2 are budgeted at $85,000 per quarter plus 10% of sales. Of the fixed amount, $15,000 each quarter is depreciation. e. The company will pay $10,000 in cash dividends each quarter. f. Land purchases will be made as follows during the year: $86,000 in the second quarter and $47,500 in the third quarter. g. The Cash account contained $26,000 at the end of Year 1. The company must maintain a minimum cash balance of at least $24,000. h. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each quarter, up to a total loan balance of $100,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the year. i. At present, the company has no loans outstanding. Required: 1a. Prepare a schedule of expected cash collections on sales by quarter and in total for Year 2. 1b. Prepare a schedule of expected cash disbursements for merchandise purchases, by quarter and in total for Year 2. 2. Compute the expected cash disbursements for selling and administrative expenses, by quarter and in total, for Year 2. 3. Prepare a cash budget by quarter and in total for Year 2. Assume that expenses are paid in the month incurred.

1. When should a person execute a durable power of attorney?
2. What preferences does an advance directive establish?
3. When is CPR indicated, and when is it not?
4. How would you explain the statement that “CPR should not be the standard of care for the chronically ill resident of a long-term care facility”?

2. Explain the difference between starvation and the malnutrition/dehydration of the dying process.

Waterway Enterprises is a boutique guitar manufacturer. The company produces both acoustic and electric guitars for rising and established professional musicians. Vanessa Aaron, the company’s sales manager, prepared the following sales forecast for 2018. The forecasted sales prices include a 5% increase in the acoustic guitar price and a 10% increase in the electric guitar price, to cover anticipated increases in raw materials prices.

Sales Price 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Acoustic guitar sales $1,200 210 260 300 305

Electric guitar sales $2,390 420 380 310 340

Prepare Waterway’s sales budget for 2018.

Sales Budget

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Annual

Acoustic:

$

$

$

$

$

$

$

$

$

$

Electric:

$

$

$

$

$

$

$

$

$

$

Total revenue

$

$

$

$

$

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On December 31, 2017, Waterway had 30 acoustic guitars in stock—fewer than the desired inventory level of 84 guitars, based on the following quarter’s sales. The company has budgeted for sales of 240 acoustic guitars in the first quarter of 2019. Prepare the 2018 production budget for acoustic guitars.

Production Budget

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Annual

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Each acoustic guitar requires a maple neck blank, which Waterway purchases for $40. On December 31, 2017, Waterway had 390 neck blanks in inventory. Spoilage during the production process results in a standard quantity of 1.5 necks per acoustic guitar. Because of recent delivery problems, Waterway wants to maintain an ending inventory equal to 50% of the following quarter’s production needs. Since the supplier has assured Waterway that the delivery issues will be resolved by the end of December, Waterway wants only 360 neck blanks in inventory on December 31, 2018. Prepare the purchases budget for neck blanks for 2018. (Enter "per guitar" value to 1 decimal place, e.g. 3.1. Round all other answers to 0 decimal places, e.g. 153.)

Purchases Budget

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Annual

$

$

$

$

$

$

$

$

$

$

1. Ulrich Inc. just announced the quarterly earnings report for its fiscal second quarter and a quarterly dividend. The net income for the second quarter was $650,000, of which 30% will be paid as dividends. The balance sheet at the end of the fiscal first quarter had a retained earnings balance of $3,545,000. Calculate the retained earnings that will be shown on the balance sheet at the end of Ulrich's fiscal second quarter.

2. Ulrich Inc.'s articles of incorporation authorize the firm to issue 500,000 shares of $5 par value common stock, of which 410,000 shares have been issued by the company. What is the total dedicated capital (i.e., total par value of common equity) on the firm's balance sheet?

3. Bond prices decline as interest rates increase. This is called bond interest rate risk. The amount of interest rate risk depends on what particular features of a bond?