Cravat Sales Company, a nationwide distributor of a designer’s silk ties with an exclusive franchise on the distribution of the ties, and sales have grown rapidly over the last few years. Your have been given responsibility for all planning and budgeting.
Your assignment is to prepare a master budget for the next 3 months, starting April 1st. You are anxious to make a favorable impression on the president and have assembled the information below.
The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows:
The large buildup in sales before and during June is due to Father’s Day. Ending inventories are supposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.
Purchases are paid for as follows:
50% in the month of purchase, and the remaining 50% in the following month
All sales are on credit, with no discount, and payable within 15 days, however, only 25% of a month’s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.
The company’s monthly selling and administrative expenses are given below:
The Term Paper on Company Description of Dewhirst Group Plc
Dewhirst Group Plc manufactures and distributes clothing and toiletries. Operations are carried out in the United Kingdom, Malaysia, Morocco and Indonesia. Manufacture of clothing accounted for 91% of revenues for the year ended 14th Jan 2000 and toiletries accounted for 9%.Competitor AnalysisDewhirst Group Plc operates in the Diversified Apparel Mfrs. sub-industry, which is a sub sector of the ...
Variable monthly expenses:
Sales commissions (per unit)$1.00
Fixed monthly expenses:
Wages and salaries$22,000.00
Utilities$14,000.00
Insurance$1,200.00
Depreciation$1,500.00
Miscellaneous$3,000.00
All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash.
The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter.
The company’s balance sheet at March 31 is given below:
The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $40,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.
Assignments:
Prepare a master budget for the three-month period ending June 30, including:
* sales budget by month and in total
* schedule of expected cash collections from sales, by month and in total
* merchandise purchases budget in units and in dollars, by month and in total
* schedule of expected cash disbursements for merchandise purchases, by month and in total
* cash budget by month and in total
* budgeted income statement for the three-month period ending June 30, with the contribution approach
* budgeted balance sheet as of June 30
Solutions:
Based on the sale forecast from April to July and the expected cash collection portions in each month (25% – 50% – 25%) , a sales budget ,a schedule of expected cash collections from sales, a merchandise purchases budget and schedule of expected cash disbursements were calculated and displayed in Table 1.
The Essay on Cash Flow Depreciation Value Company
Title: Discuss the importance of depreciation expenses. Depreciation as a concept and in practice plays a very important role in a company's cash flow hence in funding. The reason's are basically two, firstly because depreciation is a way of self finance for an organization and secondly because is a way of decreasing taxes that the government claims as the company doesn't have to pay taxes on ...
Table 1 – Cravat Sales Company
Expected sales, cash collections, and cash disbursements for merchandise purchases
Unit: USD
The Cravat Sales Company was expected to spend $195,750, $256,250, and $251,250 in cash for purchasing of merchandises in April, May, and June respectively. Totally, it would spend $703,250 within the 2nd quarter.
In the first attempt to forecast the cash funding, we found that the company could not borrow less than $40,000 per month as agreed with the bank while maintaining the minimum ending cash balance of $10,000 at the same time. If comply only the borrowing limit, it would keep marginal cash of $2,250 in hands by end of April and suffer severe cash shortage of $37,000 by the end of May.
