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

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. REQUIRED: 1. Prepare a cash budget for the 4th quarter. 2. Calculate the ending 4th quarter balance in accounts receivable. 3. Calculate the ending 4th quarter balance in accounts payable.

Explanation / Answer

Ans-   Cash Budget for the 4th quarter

Particulars Paid ($) Received($)

Cash beginging 50000

Accounts receivable 200000

Sales ( 50000*18)*75% 675000

Total Cash Received A 925000

Production 56000 units

Raw materials (56000*5*0.8)*75% 168000

Direct labor (56000*0.4*15) 336000   

Manufacturing overhead

1.Variable:direct labor (56000*0.4*10) 224000

2.Fixed overhead 300000*75%*75% 168750

Sales and administration:

1. Variable expenses 900000*5% 45000

2.Fixed expenses 240000*90%*75% 162000

Beginning accounts payable:

a. raw materials 85,000

b. manufacturing overhead 56,250

c. Sales and administration 54,000.

Total Payment B (1299000)

Minimum cash balance required (10,000)

Interest on borrowing (1250)

Loss for the quarter (A-B-10000-1250) $386500   

1.Calculation of closing accounts receivable

Sales ( 50000*18)*25% $225000

3.Calculation of closing accounts payable

Raw materials (56000*5*0.8)*25% $56000

Manufacturing overhead Fixed overhead 300000*75%*25% $56250

Sales and administration-Fixed expenses 240000*90%*25% $54000

Total $166250   

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