Question

Use the following information to complete the quarterly cash budget. Please be sure to read all instructions very carefully.

• Jazzy Pet Treats, Inc. specializes in gourmet pet treats and receives all income from sales

• Sales estimates (in millions, round all line items to the nearest million, except, in Stage 2 when you get to the $162.5 value, round one up and one down of course)

– Q1 = 500

– Q2 = 600

– Q3 = 650

– Q4 = 800

– Q1 next year = 550

• Accounts receivable

– Beginning receivables = $250

– Average collection period = 30 days

• Accounts payable

– Purchases = 50% of next quarter’s sales

– Beginning payables = 125

– Accounts payable period is 45 days

• Other expenses

– Wages, taxes, and other expense are 30% of sales each quarter

– Interest and dividend payments are $50 each quarter

– A major capital expenditure of $200 is expected in the second quarter

• The initial cash balance is $80, and the company maintains a minimum balance of $50

– In order to maintain the balance, you may need to borrow short term funds, but whatever you do borrow is only for that one quarter

• Use a standard Accounting Calendar, 360 days per year, 90 per quarter, 30 per Month

– Meaning, a 30 day delay is a 1/3 quarter delay, 45 day delay is a 1/2 quarter delay

Stage 1: Cash Collections

• ACP = 30 days; this implies that 2/3 of sales are collected in the quarter made and the remaining 1/3 are collected the following quarter

• Beginning receivables of $250 will be collected in the first quarter

• Start by working down the Quarter 1 column, then Q2 and so on…

	Q1	Q2	Q3	Q4
Beginning Receivables	250	167
Sales			650
Cash Collections
Ending Receivables	167			267

Answer 1

Jazzy Pet Treats, Inc. Cash Budget (in millions) For Q1 to 24 Q1 Q2 Q3 Q4 Beginning cash balance $80.00 $188.00 $50.00 $50.00 Collections in the same quarter $333.00 $400.00 $433.00 $533.00 Collections of prior month's receivables $250.00 $167.00 $200.00 $217.00 Total cash available $663.00 $755.00 $683.00 $800.00 Cash payments for: Purchases of same quarter $150.00 $163.00 $200.00 $137.00 Purchases of previous Quarter $125.00 $150.00 $162.00 $200.00 Wages, taxes, and other expenses $150.00 $180.00 $195.00 $240.00 (30% of sales) Interest and dividend payments $50.00 $50.00 $50.00 $50.00 Capital expenditure $0.00 $200.00 $0.00 $0.00 Total cash payments Preliminary cash balance Additional loan (loan repayment) Ending cash balance $475.00 $743.00 $607.00 $627.00 $188.00 $12.00 $76.00 $173.00 $0.00 $38.00 -$26.00 $12.00 $188.00 $50.00 $50.00 $161.00

Working Notes 1 Calculation of cash collection against sales ( in millions) Q2 Beginning Receivables (a) Sales (b) Cash Collections - Same quarter sales (2/3) (c') Cash Collections - previous quarter sales (1/3) (c') Ending Receivables (a + b -c) Q1 250.00 500.00 333.00 250.00 167.00 167.00 600.00 400.00 167.00 200.00 Q3 200.00 650.00 433.00 200.00 217.00 Q4 217.00 800.00 533.00 217.00 267.00 2 Calculation of cash payments against purchases ( in millions) Beginning Payables (a) Purchases (b) Cash Payments - Same quarter purchases (1/2) (c') Cash Payments - previous quarter purchases (1/2) (c') Ending Payables (a + b -c) Q1 125.00 300.00 150.00 125.00 150.00 Q2 150.00 325.00 163.00 150.00 Q3 162.00 400.00 200.00 162.00 200.00 Q4 200.00 275.00 (50% of next quarter sales) 137.00 200.00 138.00 162.00