Question

QUESTION 1

1. Anglo Foods Inc., has the following forecasted sales for 2018:

   January	February	March	April	May	June	July
   $200,000	$350,000	$420,000	$350,000	$270,000	$200,000	$300,000

   Actual sales in November and December 2017 were $375,000 and 266,667, respectively. 60% of sales are on credit (i.e. 40% of sales will be received in cash in the same month). The firm collects 60% of these credit sales (i.e., 60%*60% = 36% of sales) during the first month after the sale and the remainder (i.e. 40% of credit sales and thus 40%*60% = 24% of sales) during the following second month.

   For example, for the January sales of $200,000, 40% (i.e. $80,000) will be received in cash in January, 36% (i.e. $72,000) will be received in cash in February, and the rest ($48,000) will be received in cash in March.

          Here are the information about the cash expenditures.

   1. Purchases constitute 60% of the next month’s sales. The company pays 50% during the first month after the purchase was made and the remainder in the next month.

   For example, January purchases will be 60% of February sales, i.e., $350,000*60%=$210,000. The company pays 50% of it ($105,000) in cash in February, and the rest in March.

   2. Wages, taxes and other expenses are expected to be 30% of forecasted sales.
   3. A major capital expenditure of $70,000 is expected in March.
   4. Interest payments are expected to be $30,000 every month.

   The company needs a minimum cash balance of $25,000. The beginning cash balance is $30,000.

   Using the Bithlo Barbecues’ simple cash budget example from Chapter 4, prepare their cash budget for January to June 2018.

   Answer Q (1-5) based on the cash budget you have prepared.

QUESTION 2

1. How much is the total cash expenditure (total disbursement) in January?

   		$230,00
   		$66,000
   		$266,000
   		$210,000

7 points   

QUESTION 3

1. How much is the unadjusted cash balance for March?

   		$98,000
   		($73,000)
   		$42,000
   		$45,000

7 points   

QUESTION 4

1. How much is the cash collection for January that is from sales one month earlier (December 2017)?

   		$90,000
   		$64,000
   		$72,000
   		$96,000

7 points   

QUESTION 5

1. How much is the cumulative borrowing in March?

   		$90,000
   		$98,000
   		$88,000
   		$70,000

Answer 1

Cash Budget
	January	February	March	April	May	June
Beginning Cash Balance	$         30,000	$         66,000	$         42,000	$        -73,000	$        -63,800	$        -26,000
Cash Collections	$       266,000	$       276,000	$       342,000	$       375,200	$       334,800	$       261,200
Total Cash Available	$       296,000	$       342,000	$       384,000	$       302,200	$       271,000	$       235,200
Cash Payments
Purchases	$       140,000	$       165,000	$       231,000	$       231,000	$       186,000	$       141,000
Wages, taxes and other expenses	$         60,000	$       105,000	$       126,000	$       105,000	$         81,000	$         60,000
Interest Payments	$         30,000	$         30,000	$         30,000	$         30,000	$         30,000	$         30,000
Capital Expenditure			$         70,000
Total Cash Payments	$       230,000	$       300,000	$       457,000	$       366,000	$       297,000	$       231,000
Ending Cash balance	$         66,000	$         42,000	$        -73,000	$        -63,800	$        -26,000	$            4,200

Working

Cash Budget
	January	February	March	April	May	June
Beginning Cash Balance
Cash Collections	=200000*40%+266667*36%+375000*24%	=350000*40%+200000*36%+266667*24%	=420000*40%+350000*36%+200000*24%	=350000*40%+420000*36%+350000*24%	=270000*40%+350000*36%+420000*24%	=200000*40%+270000*36%+350000*24%
Total Cash Available
Cash Payments
Purchases	=266667*60%*50%+200000*60%*50%	=200000*60%*50%+350000*60%*50%	=350000*60%*50%+420000*60%*50%	=420000*60%*50%+350000*60%*50%	=270000*60%*50%+350000*60%*50%	=200000*60%*50%+270000*60%*50%
Wages, taxes and other expenses	=200000*30%	=350000*30%	=420000*30%	=350000*30%	=270000*30%	=200000*30%

Q2.
Answer is a. $230,000

Q3.
Answer is b. ($73,000)

Q4.
Answer is d. $96000 i.e. 266667*36%

Q5.
Answer is b .$98000 i.e. $73000+25000