Davis Products, a rapidly growing distributor of home gardening equipment, is fo
ID: 2597302 • Letter: D
Question
Davis Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm's marketing director, has completed the following sales forecast. Month Sales Month Sales $1,501,000 $1,501,000 $903,800 July anuary February $1,001,200 August March 903,800 September $1,604,500 $1,604,500 $1,252,100 November $1,501,000 1,700,900 1,150,300 October May une $1,407,500 December Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information. All sales are made on credit. Davis's excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale Cost of goods sold, Davis's largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase ·Hourly wages and fringe benefits, estimated at 30% of the current month's sales, are paid in the month incurred General and administrative expenses are projected to be $1,565,600 for the year. A breakdown the expenses follows. All expenditures are paid monthly throughout the year, with the exception of taxes, which are paid in four equal installments at the end of each quarter Salaries and fringe benefits Advertising Property taxes Insurance Utilities Depreciation Total 323,800 374,300 145,100 194,600 178,400 349,400 1,565,600 Operating income for the first quarter of the coming year is projected to be $323,100. Davis is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter . Davis maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $50,300Explanation / Answer
Cash Receipts Budget
April
May
June
Total Cash Receipts
February Sales
400480
400480
March Sales
542280
361520
903800
April Sales
690180
460120
1150300
May Sales
751260
751260
Totals
942760
1051700
1211380
3205840
Accounts receivable at the end of second
quarter of 2015
1908340
Purchase Budget
April
May
June
Total Purchase
April COGS
138036
138036
May COGS
350588
150252
500840
June COGS
394100
168900
563000
July COGS
420280
420280
Totals
488624
544352
589180
1622156
Cash Payments Budget
April
May
June
Total Purchase
March Purchases
107635
107635
April Purchases
366468
122156
488624
May Purchases
408264
136088
544352
June Purchases
441885
441885
Totals
474103
530420
577973
1582496
Accounts payable at the end of second
quarter of 2015
105070
CASH BUDGET
April
May
June
Quarter
Beginning cash balance
50300
50000
50000
50300
Cash received from accounts receivables
942760
1051700
1211380
3205840
Total
993060
1101700
1261380
3256140
Cash Outflows
Payment to accounts payable
474103
530420
577973
1582496
Wages and fringe benefits
345090
375630
422250
1142970
Salaries and fringe benefits
26983
26983
26983
80950
Advertising
31192
31192
31192
93575
Property Taxes
36275
36275
Insurance
16217
16217
16217
48650
Utilities
14867
14867
14867
44600
Tax
129240
129240
Total
1037691
995308
1125756
3158756
Excess/-Deficient cash
-44631
106391
135624
97384
Finance required
94631
94631
Less:
Interest on April's borrowed amount
1893
401
2294
Principal repayment
54498
40133
94631
Closing cash balance
50000
50000
95090
95090
Cash Receipts Budget
April
May
June
Total Cash Receipts
February Sales
400480
400480
March Sales
542280
361520
903800
April Sales
690180
460120
1150300
May Sales
751260
751260
Totals
942760
1051700
1211380
3205840
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