Cash Budget

Cash budgeting for Nichole Mango, a merchandising firm, is performed on a quarterly basis. The company is planning its cash needs for the third quarter of 2017, and the following information is available to assist in preparing a cash budget. Budgeted income statements for July through October 2017 are as follows:

                                                                               July              August            September       October

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,000        $28,000           $32,000            $40,000

Cost of goods sold  . . . . . . . . . . . . . . . . . . . . (11,000)          (15,000)            (17,000)          (21,000)

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . .   11,000            13,000               15,000               19,000

Less other expenses

Selling  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       3,300              4,000                    4,400              5,200

Administrative. . . . . . . . . . . . . . . . . . . . . .          3,600             5,000                   4,200                 4,600

Total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (6,900)         (9,000)                 (8,600)              (9,800)

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . .      $4,100        $4,000                   $6,400               $9,200

Additional information follows:

1. Other expenses, which are paid monthly, include $2,000 of depreciation per month.

2. Sales are 40 percent for cash and 60 percent on credit.

3. Credit sales are collected 25 percent in the month of sale, 65 percent one month after sale, and 10 percent two months after sale. May sales were $16,000, and June sales were $17,000.

4. Merchandise is paid for 50 percent in the month of purchase; the remaining 50 percent is paid in the following month. Accounts payable for merchandise at June 30 totaled $7,000.

5. The company maintains its ending inventory levels at 20 percent of the cost of goods to be sold in the following month. The inventory at June 30 is $2,200.

6. An equipment note of $6,000 per month is being paid through August.

7. The company must maintain a cash balance of at least $6,000 at the end of each month. The cash balance on June 30 is $6,100.

8. The company can borrow from its bank as needed. Borrowings and repayments must be in multiples of $100. All borrowings take place at the beginning of a month, and all repayments are made at the end of a month. When the principal is repaid, interest on the repayment is also paid. The interest rate is 12 percent per year.

Required

a. Prepare a monthly schedule of budgeted operating cash receipts for July, August, and September.

b. Prepare a monthly purchases budget and a schedule of budgeted cash payments for purchases for

July, August, and September.

c. Prepare a monthly cash budget for July, August, and September. Show borrowings from the company’s bank and repayments to the bank as needed to maintain the minimum cash balance.

Question:
JB Company sells three products — A, B, and C — with contribution margins of $2.5, $1, and $2, respectively. The fixed costs for the period are $128. Preliminarily, the company has three versions of forecast for the coming period as follows:

Forecast One:

The forecast sales of 200 units in the coming period, consisting of 40 units of A, 100 units of B, and 60 units of C.

Forecast Two:

The forecast sales of 220 units in the coming period, maintaining the same sales mix as Forecast One.

Forecast Three:

The forecast sales of 240 units in the coming period, consisting of 40 units of A, 100 units of B, and 100 units of C. Fixed costs are increased to $160.

Required:

A. What is the company’s breakeven point in bundles under Forecast One?
Breakeven point =  bundles            

B. What is the company’s breakeven point in total units of (in the sum of) the three products under Forecast One?
Breakeven point =  in total units

C. What is the company’s total contribution margin under Forecast Two?
Contribution Margin = $                         

D. What is the company’s operating income under Forecast Three?
Operating Income = $                                  

E. What is the new breakeven point in bundles under Forecast Three?
Breakeven point =  bundles

F. What is the new breakeven point in total units of (in the sum of) the three products under Forecast Three?
Breakeven point =  in total units    

3. a) Consider an annuity of 6 cash flows of $5,000 payable annually. If the interest rate is 7 per cent per annum, what is the value of this annuity today if the first cash flow is to be paid immediately? [8 marks]

3.  b) You are considering the purchase of a home for $700,000. You have available a deposit of $100,000. The bank will lend you money at 7 per cent per annum compounded monthly over a period up to 20 years. If you borrow the required funds over 20 years, what are the monthly repayments? After two years, how much do you still ow the bank? What is the interest component of the 25^th repayment? [7 marks]

5. Midwest Packaging's ROE last year was only 5%; but its management has developed a new op-erating plan that calls for a debt-to-assets ratio of 60%, which will result in annual interest charges of $120,000. The firm has no plans to use preferred stock. Management projects an EBIT of $332,000 on sales of $4,000,000, and it expects to have a total assets turnover ratio of 2.1. Under these conditions, the tax rate will be 40%. If the changes are made, what will be the company's return on equity? Round your answer to two decimal places. %

6. Fontaine Inc. recently reported net income of $7 million. It has 560,000 shares of common stock, which currently trades at $25 a share. Fontaine continues to expand and anticipates that 1 year from now, its net income will be $11.9 million. Over the next year it also anticipates issuing an additional 84,000 shares of stock so that 1 year from now it will have 644,000 shares of common stock. Assuming Fontaine's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Round your answer to the nearest cent. $

Select one answer as the best response and explain your reason for the selection.

1. Generally speaking technological progress leads to higher output

1. purely because it raises the productivity of capital
2. purely because it raises the steady-state capital stock
3. because it raises both the productivity of capital and the steady state capital stock
4. purely because it increases the capital stock for a given production function
5. purely because it raises the output produced by a given capital stock

Explain your answer:

2. Increases in human capital

1. reduce the marginal product of labor
2. increase the marginal product of physical capital
3. are the by-product of technological innovations
4. shift the economy’s production function downward
5. are calculated as the difference between birth rates and death rates

Explain your answer:

3. Suppose that production at a firm occurs according to the following schedule.

Labor:    0     1     2     3     4     5     6

Output:   0     175 340 495 640 765 880

If the wage per unit of labor is $765 and the price of output is $5 per unit, then the optimal amount of labor to hire is

1. zero
2. at least one but less than two
3. between three and four
4. five
5. six or more

Explain your answer:

4. In most developed economies, unemployment insurance benefits

1. are nonexistent
2. paid for by insurance companies
3. initially replace 100% of lost wages
4. replace an increasing percentage of lost earnings as the duration of unemployment becomes prolonged
5. become less generous as the duration of unemployment is prolonged

Explain your answer:

A business makes two products C and D with the following sales prices and cost data:
                                                               C                                 D
Selling price per unit                             $25                             $30
Direct material cost per unit                 $8                                 $7
Direct labour cost (0.5 hrs. product     $8  per unit                    $6 per hour
Variable overhead                                $1 per unit                    $2 per direct labour hour
Required
1. Determine the forecast of total costs and profits for a month when the business expects to
make and sell 1 200 units of product C and 1 800 units of product D.

A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost of capital is 6 percent. Year Cash Inflow A B 1 $175 $1,100 2 175 - 3 175 - 4 175 - 5 175 - 6 175 - 7 175 - 8 175 - a. What is the internal rate of return on each investment? Which investment should the firm make? b. What is the net present value of each investment? Which investment should the firm make? c. If the cash inflows can be reinvested at 8 percent, which investment should be made?

Smith Company started business on September 1. Smith had credit sales of $200,000 in September and $300,000 in October. The pattern for collection of cash from customers is expected to be 40% in the month of sale (subject to a 2% cash discount), 50% in the month following the month of sale, and 7% in the second month following the month of sale, with 3% uncollectible. How much cash did Smith Company receive from customers on account during October?.

In each of the following case, find the unknown variables: be sure to show all work

Smith Company started business on September 1. Smith had credit sales of $200,000 in September

and $300,000 in October. The pattern for collection of cash from customers is expected to be 40%

in the month of sale (subject to a 2% cash discount), 50% in the month following the month of sale,

and 7% in the second month following the month of sale, with 3% uncollectible. How much cash

did Smith Company receive from customers on account during October?