Question

Concord 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
January		$904,000		July		$1,507,200
February		$1,004,100		August		$1,507,200
March		$904,000		September		$1,605,000
April		$1,152,200		October		$1,605,000
May		$1,258,600		November		$1,507,200
June		$1,400,600		December		$1,707,500

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.
●	Concord’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, Concord’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 $1,559,700 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits		$	325,500
Advertising			375,700
Property taxes			136,500
Insurance			190,100
Utilities			181,700
Depreciation			350,200
Total		$	1,559,700

●

Operating income for the first quarter of the coming year is projected to be $321,300. Concord is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter.

●

Concord 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 $54,800.

Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. enter 0.) Cash Receipts Budget May June April Total Cash Receipts February sales 401640 401640 March sales 542400 361600 904000 > . April sales 691320 460880 1152200 > > > May sales 755160 755160 Totals 944040 1052920 1216040 3213000 X 214147 Accounts Receivable balance at the end of second quarter of 2015

Answer 1

Cash budget for 2nd Quarter Particulars April May June opening balance (A) 54800 50465 54410 debtors collection (B) 944040 1052920 1216040 Total receipts C = (A)+(B) 998840 1103385 1270450 Creditors settlement (D) 475778 530068 578366 Wages and fring benefits (E) 345660 377580 420180 admin Exp. (F) 89417 89417 89417 Property tax (G) 0 0 34125 Income tax exp (H) 128520 0 0 Total payments I=(C to G) 1039375 997065 1122088 Net cash flows from operations J= (C)-(1) -40535 106320 148362 Borrowings (K) 91000 40000 0 Repayment of borrowings (L) 0 91000 40000 Interest on borrowings (M) 0 910 400 Closing balance (J+K-L-M) 50465 54410 107962

Explanations:

Income tax expense Estimated operating income for first quarter Tax rate Tax amount Payment to be made april 321300 40% 128520 128520

Particulars Salary advertising insurance utilities sub total property tax sub total depreciation subtotal total General and admin exp. Annual amoun Monthly Quarterly non cash flows 325500 375700 190100 181700 1073000 89416.666 136500 136500 34125 350200 350200 350200 1559700

Month april may june Wages and Fringe benefits Sale wages 30% of sale Payment 1152200 345660 345660 1258600 377580 377580 1400600 420180 420180

sale Month april may june Cost of goods sold cost of goods sold purchases total payment payment total 40% of sale 70% purchases 30% purchase 75% 25% payment 1152200 460880 352408 138264 490672 368004 107774 475778 1258600 503440 392168 151032 543200 407400 122668 530068 1400600 560240 422016 168072 590088 442566 135800 578366