Gary Siegel recently opened a steel warehouse. Gary buys his steel only after he receives a firm
Question:
Gary informs you that he currently collects 30% of revenues in the month after sale and the remaining 70% two months following the sale. Gary pays for 50% of his purchases in the month of purchase and 50% in the following month. His monthly fixed costs amount to $95,000, including $10,000 in noncash expenses. Finally, Gary marks up his products by 25% over the purchase price.
Gary provides the following information regarding projected sales for the next five months.
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Required:
a. Construct Gary€™s budgeted contribution margin income statement for October,
November, and December.
b. Construct Gary€™s cash budget for October, November, and December. Assume that, because of a special payment to be made at the end of the third quarter, Gary plans to begin October with $5,000 in cash on hand.
c. Explain why Gary is facing a cash flow problem even though his business is profitable. Identify two things that Gary could do to alleviate the anticipated cashcrunch.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes... Cash Budget
A cash budget is an estimation of the cash flows for a business over a specific period of time. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payment. Its primary purpose is to provide the...
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Step by Step Answer:
a The following table provides Garys income statement for October through December In this statement notice that the cost of purchases 80 of sales Gar...View the full answer
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Related Book For 
Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin
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