Capel Company\'s financial managers are meeting with the company\'s bank to rene
ID: 2798377 • Letter: C
Question
Capel Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year. The follawing budget assumptions were used to construct the budget: Capel's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Capel's sales are made on credit with terms of 2/10, net 30. Capel's experience is that 25% is collected from customers who take advantage of the discount, 65% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 45% of Capel's finished product. The purchases are generally made one month in advance of the sale, and Capel pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,100 million, then purchases during June would be $495 ($1,100 million x 0.45), and this amount would be paid in July. other cash expenses include wages and salaries at 18% of sales, onthly rent of $40 million, and other expenses at 5% of sales. Estimated tax payments of $59 million and $61 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,000 million payment for a new plant must be made in September. Assume that Capel's targeted cash balance is $300, and the estimated cash on hand on July 1 is $262. ·Explanation / Answer
cash budget
May
june
July
August
September
October
November
December
credit sales
950
980
1000
1010
1030
1050
1080
1100
credit purchase
450
464
473
486
495
July
August
September
October
November
December
cash receipts
collection from this month sale
245
247
252
257
265
270
collection from previous month sale
637
650
657
670
683
702
collection from two month previously
95
98
100
101
103
105
total cash receipts
977
995
1009
1028
1051
1077
cash disbursement
credit purchase
450
455
464
473
486
495
wages
180
182
185
189
194
198
rent
40
40
40
40
40
40
other expenses
50
51
52
53
54
55
taxes
59
61
payment for plant contruction
1000
total cash disbursement
779
728
1741
815
774
788
net cash flow
198
267
-732
212
277
289
beginning cash balance
262
460
727
-5
207
484
ending cash balance
460
727
-5
207
484
773
minimum cash balance
300
300
300
300
300
300
surplus/ shortfall cash
160
427
-305
-93
184
473
Fill in the blank
answer
1-
generate
2-
1077
3-
surplus
4-
473
5-
balance
6-
773
7-
-305
8-
473
cash budget
May
june
July
August
September
October
November
December
credit sales
950
980
1000
1010
1030
1050
1080
1100
credit purchase
450
464
473
486
495
July
August
September
October
November
December
cash receipts
collection from this month sale
245
247
252
257
265
270
collection from previous month sale
637
650
657
670
683
702
collection from two month previously
95
98
100
101
103
105
total cash receipts
977
995
1009
1028
1051
1077
cash disbursement
credit purchase
450
455
464
473
486
495
wages
180
182
185
189
194
198
rent
40
40
40
40
40
40
other expenses
50
51
52
53
54
55
taxes
59
61
payment for plant contruction
1000
total cash disbursement
779
728
1741
815
774
788
net cash flow
198
267
-732
212
277
289
beginning cash balance
262
460
727
-5
207
484
ending cash balance
460
727
-5
207
484
773
minimum cash balance
300
300
300
300
300
300
surplus/ shortfall cash
160
427
-305
-93
184
473
Fill in the blank
answer
1-
generate
2-
1077
3-
surplus
4-
473
5-
balance
6-
773
7-
-305
8-
473
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