978-1259277160 Chapter 4 Solution Manual Part 3

Unlock access to all the studying documents.

View Full Document

Chapter 04: Financial Forecasting

4-21. Solution:

Denver Corporation

Cash Payments Schedule

Dec. Jan. Feb. March April May June July

Sales $15,000 $17,00

$19,000 $25,000 $15,00

$21,000 $23,000

Purchases (40% of

next month’s sales)

6,000 6,800 7,600 10,000 6,000 8,400 9,200

22. Schedule of cash payments (LO2) Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:

Chapter 04: Financial Forecasting

March 4,000

April 10,000

May 8,000

June 6,000

Wright maintains an ending inventory for each month in the amount of one and one-half times the expected sales in the following

month. The ending inventory for February (March’s beginning inventory) reflects this policy. Materials cost $7 per unit and are

paid for in the month after production. Labor cost is $3 per unit and is paid for in the month incurred. Fixed overhead is $10,000

per month. Dividends of $14,000 are to be paid in May. Eight thousand units were produced in February.

Complete a production schedule and a summary of cash payments for March, April, and May. Remember that production in

any one month is equal to sales plus desired ending inventory minus beginning inventory.

4-22. Solution:

Wright Lighting Fixtures

Production Schedule

March April May June

Cash Payments

Feb March April May

Labor ($3/unit) month

Chapter 04: Financial Forecasting

23. Schedule of cash payments (LO2) The Volt Battery Company has forecast its sales in units as follows:

January…………….. 1,300 May……… 1,850

February…………… 1,150 June……… 2,000

March………………. 1,100 July……… 1,700

April………………… 1,600

Volt Battery always keeps an ending inventory equal to 110 percent of the next month’s expected sales. The ending inventory for

December (January’s beginning inventory) is 1,460 units, which is consistent with this policy.

Materials cost $14 per unit and are paid for in the month after purchase. Labor cost is $7 per unit and is paid in the month the

cost is incurred. Overhead costs are $8,500 per month. Interest of $8,500 is scheduled to be paid in March, and employee

bonuses of $13,700 will be paid in June.

Prepare a monthly production schedule and a monthly summary of cash payments for January through June. Volt produced

1,100 units in December.

4-23. Solution:

Volt Battery Company

Production Schedule

Jan. Feb. March April May June July

Chapter 04: Financial Forecasting

produced

Summary of Cash Payments

Dec. Jan. Feb. March April May June

($5/unit)

month

Chapter 04: Financial Forecasting

incurred

payments

Chapter 04: Financial Forecasting

24. Cash Budget (LO2) Graham Potato Company has projected sales of $6,000 in September,

$10,000 in October, $16,000 in November, and $12,000 in December. Of the company’s

sales, 20 percent are paid for by cash and 80 percent are sold on credit. Experience shows

that 40 percent of accounts receivable are paid in the month after the sale, while the

remaining 60 percent are paid two months after. Determine collections for November and

December.

Also assume Graham’s cash payments for November and December are $13,000 and

$6,000, respectively. The beginning cash balance in November is $5,000, which is the

desired minimum balance.

Prepare a cash budget with borrowing needed or repayments for November and

December. (You will need to prepare a cash receipts schedule first.)

4-24. Solution:

Graham Potato Company

Cash Receipts Schedule

September October November December

Graham Potato Company (Continued)

Cash Budget

November December

Cash receipts $ 9,280 $12,320

of McGraw-Hill Education.

Chapter 04: Financial Forecasting

25. Complete cash budget (LO2) Harry’s Carryout Stores has eight locations. The firm

wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the

banker, will finance construction if the firm can present an acceptable three-month

financial plan for January through March. The following are actual and forecasted sales

figures:

Actual Forecast Additional Information

November……….. $260,000 January………… $400,000 April forecast…… $400,000

December………… 340,000 February………. 440,000

March……….. 410,000

Of the firm’s sales, 60 percent are for cash and the remaining 40 percent are on credit. Of

credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the

second month after the sale. Materials cost 20 percent of sales and are purchased and

received each month in an amount sufficient to cover the following month’s expected sales.

Materials are paid for in the month after they are received. Labor expense is 50 percent of

sales and is paid for in the month of sales. Selling and administrative expense is 15 percent

of sales and is also paid in the month of sales. Overhead expense is $31,000 in cash per

month.

Depreciation expense is $10,600 per month. Taxes of $8,600 will be paid in January, and

dividends of $5,000 will be paid in March. Cash at the beginning of January is $92,000,

and the minimum desired cash balance is $87,000.

For January, February, and March, prepare a schedule of monthly cash receipts, monthly

cash payments, and a complete monthly cash budget with borrowings and repayments.

of McGraw-Hill Education.

Chapter 04: Financial Forecasting

4-25. Solution:

Harry’s Carry-Out Stores

Cash Receipts Schedule

November December January February March April

receipts

4-25. (Continued)

Harry’s Carry-Out Stores

Cash Payments Schedule

January February March

sales paid in month after purchases—equivalent

to 20% of current sales)…………………………………

Chapter 04: Financial Forecasting

*The $10,600 of depreciation is excluded because it is not a cash expense.

4-25. (Continued)

Harry’s Carry-Out Stores

Cash Budget

January February March

Total cash receipts…………………………. $350,400 $404,800 $409,200

Total cash payments………………………. 379,600 405,000 384,500

Chapter 04: Financial Forecasting

26. Complete cash budget (LO2) Archer Electronics Company’s actual sales and purchases

for April and May are shown here, along with forecast sales and purchases for June through

September.

Sales Purchases

April (actual)……………………………… $370,000 $155,000

May (actual)……………………………….. 350,000 145,000

June (forecast)…………………………….. 325,000 145,000

July (forecast)…………………………….. 325,000 205,000

August (forecast)………………………… 340,000 225,000

September (forecast)……………………. 380,000 220,000

The company makes 20 percent of its sales for cash and 80 percent on credit. Of the

credit sales, 50 percent are collected in the month after the sale, and 50 percent are

collected two months later. Archer pays for 20 percent of its purchases in the month after

purchase and 80 percent two months after.

Labor expense equals 15 percent of the current month’s sales. Overhead expense equals

$12,500 per month. Interest payments of $32,500 are due in June and September. A cash

dividend of $52,500 is scheduled to be paid in June. Tax payments of $25,500 are due in

June and September. There is a scheduled capital outlay of $350,000 in September.

Archer Electronics’ ending cash balance in May is $22,500. The minimum desired cash

balance is $10,500. Prepare a schedule of monthly cash receipts, monthly cash payments,

and a complete monthly cash budget with borrowing and repayments for June through

September. The maximum desired cash balance is $50,500. Excess cash (above $50,500) is

used to buy marketable securities. Marketable securities are sold before borrowing funds in

case of a cash shortfall (less than $10,500).

of McGraw-Hill Education.