Cash budgeting. Retail outlets purchase snowboards from Slopes, Inc., throughout the year.

However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, filopes’s accountant projects 20% ofinvoices are paid in the month invoiced, 50% are paid in the following month, and 30% ofinvoices are paid two months past the month ofinvoice. The average selling price per snowboard is $540.

To meet demand, filopes increases production from April through July. The snow¬

boards are produced a month before their projected sale. Materials are purchased in the month of production and paid for during the following month (terms are invoice date plus 30 days). During this period there is no production to inventory, and no materials are purchased for inventory.

Direct labour and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $8.40 per direct manufacturing labour-hour. Variable mar¬

keting costs are driven by the number ofsales visits. However, there are no sales visits during the months studied, filopes, Inc., also incurs fixed manufacturing overhead costs of $6,600 per month and fixed nonmanufacturing overhead costs of $3,000 per month.

Projected Sales 234 CHAPTER 6 May 96 units June 144 units July 240 units August 120 units September 72 units October 48 units Materials and Labour Utilization and Cost Units per Board Price per Unit Unit Wood 5 $36 Board feet Fibreglass 6 6 Yard Direct labour 5 25 Hour On September 1, 2007, Slopes had a cash crunch and borrowed $36,000 on a 6% 1-year note with interest payable monthly. The note is due October 1, 2008. Using the preceding infor¬

mation, determine whether Slopes will be in a position to pay off this short-term debt on October 1, 2008.

Required 1. Prepare a cash budget forJuly through September 2008, assuming an opening cash balance of zero. Show supporting schedules for the calculation ofreceivables and payables.

2. Will Slopes be in a position to pay off the $36,000 1-year note on October 1, 2008? If not, what actions would you recommend to Slopes’s management?
3. Suppose Slopes is interested in maintaining a minimum cash balance of $12,000. Does the company manage to maintain such a balance during all three months analyzed? If not, suggest a suitable cash management strategy.