Cash Flow Budget Parameters: Sales: Qtr 4 Units 50,000 Price $ 18.00 Required pr

Question

Cash Flow Budget Parameters:

Sales:

Qtr 4

Units

                       50,000

Price

$                      18.00

Required production - units

                       56,000

Raw materials required per unit (lbs)

                                  5

Cost per pound

$                         0.80

Direct labor hours required per unit

                            0.40

Direct labor rate per hour $

$                      15.00

Manufacturing overhead:

1.Variable: direct labor hours is the cost driver

@ 10.00 per hour paid in quarter incurred.

2. Fixed over head is $300,000 per quarter of

   which 25% are noncash charges.

Sales and administration:

1. Variable expenses are 5% of sales dollars.

   paid in the quarter incurred.

2. Fixed expenses are $240,000, 10% of which

        are noncash charges.

Other information:

1. Beginning cash balance

$              50,000.00

2. beginning accounts receivable

$            200,000.00

3. Beginning accounts payable:

a. raw materials

$              85,000.00

b. manufacturing overhead

$              56,250.00

c. Sales and administration

$              54,000.00

d. sales are collected 75% in qtr. sold and 25%

     qtr. following.

e. raw material purchases are paid 75% in qtr.

   purchased and 25% qtr. Following

f. All variable expenses are paid in the qtr.

    incurred.

g. All fixed cash expenses are paid 75% in qtr.

incurred and 25% qtr following.

h. Minimum cash balance required

                       10,000

i. Equipment purchases in 4th quarter

                       50,000

j. Short term borrowing required to maintain

minimum cash balance is repaid in the quarter

following; the interest rate is 2.5% per quarter.

Borrowings must be in $5,000 increments.

Instructions:

1. Prepare a cash budget for the 4th quarter.

2. Calculate the ending 4th quarter balance

   in accounts receivable.

2. Calculate the ending 4th quarter balance

   in accounts payable.

Cash Flow Budget Parameters:

Sales:

Qtr 4

Units

                       50,000

Price

$                      18.00

Required production - units

                       56,000

Raw materials required per unit (lbs)

                                  5

Cost per pound

$                         0.80

Direct labor hours required per unit

                            0.40

Direct labor rate per hour $

$                      15.00

Manufacturing overhead:

1.Variable: direct labor hours is the cost driver

@ 10.00 per hour paid in quarter incurred.

2. Fixed over head is $300,000 per quarter of

   which 25% are noncash charges.

Sales and administration:

1. Variable expenses are 5% of sales dollars.

   paid in the quarter incurred.

2. Fixed expenses are $240,000, 10% of which

        are noncash charges.

Other information:

1. Beginning cash balance

$              50,000.00

2. beginning accounts receivable

$            200,000.00

3. Beginning accounts payable:

a. raw materials

$              85,000.00

b. manufacturing overhead

$              56,250.00

c. Sales and administration

$              54,000.00

d. sales are collected 75% in qtr. sold and 25%

     qtr. following.

e. raw material purchases are paid 75% in qtr.

   purchased and 25% qtr. Following

f. All variable expenses are paid in the qtr.

    incurred.

g. All fixed cash expenses are paid 75% in qtr.

incurred and 25% qtr following.

h. Minimum cash balance required

                       10,000

i. Equipment purchases in 4th quarter

                       50,000

j. Short term borrowing required to maintain

minimum cash balance is repaid in the quarter

following; the interest rate is 2.5% per quarter.

Borrowings must be in $5,000 increments.

Instructions:

1. Prepare a cash budget for the 4th quarter.

2. Calculate the ending 4th quarter balance

   in accounts receivable.

2. Calculate the ending 4th quarter balance

   in accounts payable.

Explanation / Answer

1)

Working

2. Calculate the ending 4th quarter balance  in accounts receivable.

Accounts Recievable = 50000*18*25%

Accounts Recievable = $ 225,000

3) Calculate the ending 4th quarter balance in accounts payable.

Accounts Payable :

Raw Material = 56000*5*0.80 * 25% = $ 56000

manufacturing overhead = 300000*(1-25%)*25% = $ 56,250

Sales and administration Overhead = (240000*(1-10%)*25%) = $ 54000

Total 4th quarter balance in accounts payable = $ 166,250

Cash Budget Amount    Cash balance, beginning                        50,000    Add receipts from customers                      875,000    Total cash available                      925,000    Less disbursements:         Purchase of inventory                      253,000         Direct Labor (56000*0.40*15)                      336,000         Manufacturing Overhead                      449,000         Sales and administration                      261,000         Equipment                        50,000    Total disbursements                  1,349,000    Excess (deficiency) of receipts over                   (424,000)      disbursements    Financing:         Borrowings                      450,000         Repayments                                 -           Interest                      (11,250) Total financing                      438,750    Cash balance, ending                        14,750

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