4 The investment in assets (cash, inventory, equipment) required for the new location is 5 Minimum required return on investments 6 Actual 2019 return on investment of the original location 7 8 Management has provided the following income statement to the bank manager the expected net income in Static Budget % Amount 9 10 Sales in Units 11 Sales 12 Less: Variable Costs: 13 Cost of Goods Sold 14 Sales Commissions 15 Total Variable Costs 16 Contribution Margin 17 Less: Fixed Costs: 18 Advertising 19 Property Taxes 20 Rent 21 Salaries & Wages 22 Total Fixed Costs 23 Net Operating Income 24 4,200 525,000 100% 225,000 43% 78,750 15% 303,750 58% 221,250 42% 21,000 9,000 54,000 113,000 197,000 24,250 $ 162,000 16% 20% #2 =3 #4 15 Required: Prepare a cash budget for the first year of operation in Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. 6 Percent of Sales 17 Estimated Sales 8 9 CASH BALANCE, Beginning 0 Collections from customers: #1 Cash Sales #2 Credit Sales 13 CASH AVAILABLE 4 Less: Cash Payments 45 Merchandise purchases (COGS) 16 #7 Advertising 18 Property Taxes Sales Commissions 9 Rent 50 Salaries & Wages 1 Equipment Purchase 2 Income tax Installment 6 3 4 Cash Excess (Deficiency) 5 Financing (Note 1) Total Disbursements Borrow Repayment of Principal (show as negative) 7 8 Net Financing 9 Cash Balance, Ending 0 1 Note 1: Financing Calculations 2 Cash excess (Deficiency) 3 Minimum cash balance 4 Amount to borrow (repay) Borrowing (Repayments) Rounded to 5 increment of $1,000 6 7 S Mountain Sports Cash Budget For the year ended December 31 28% $147,000 56,000 Quarter 2 29% $152,250 21% $110,250 4 22% $115,500 Year Summary 100% $525,000 Note from Instructor: Total sales amount taken from question 4. Remember to refer to question 4 as this cash budget is a continuation of the Canmore expansion introduced in Question 4. This will be important for the cash disbursements as welll 1 Question 5 -Cash Budget (30 marks) 2 3 456780 9 10 6 1. Beginning cash balance invested by owners 2. Sales by quarter (as % of total projected sales) Mountain Sports has aquired an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line of credit including any interest. 11 3. Type of collections from customers: 12 Cash Sales 13 Credit Sales (accounts receivable) 14 Management has provided the following list of assumptions to help in the preparation of the cash budget (note: you will need to use the projected income statement provided in Question 4 to complete the cash budget): 40% 60% C 20 5. Operating expenses 21 All other operating expenses (all expenses except cost of goods s 22 Quarter 1 27 8. Minimum cash balance 28 6. Required investment in equipment paid in cash in the first quarter 23 24 25 7. Quarterly income tax payments paid in cash 26 28% $ D Quarter 2 15 Cash sales are collected in the quarter of the sale, all credit sales are collected in the quarter after the sale. 16 17 4. Merchandise purchases $ 56,000 $ $ 29% Merchandise purchases (cost of goods sold) are all paid in the quarter following purchase. (Quarter 1 purchases are bought in Quarter 1 but 18 paid for in quarter 2). 19 E 138,000 8,000 Quarter 3 21,000 F 21% Quarter 4 22% 29 9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1,000. Interest on borrowing can be ignored. 4 The investment in assets (cash, inventory, equipment) required for the new location is 5 Minimum required return on investments 6 Actual 2019 return on investment of the original location 7 8 Management has provided the following income statement to the bank manager the expected net income in Static Budget % Amount 9 10 Sales in Units 11 Sales 12 Less: Variable Costs: 13 Cost of Goods Sold 14 Sales Commissions 15 Total Variable Costs 16 Contribution Margin 17 Less: Fixed Costs: 18 Advertising 19 Property Taxes 20 Rent 21 Salaries & Wages 22 Total Fixed Costs 23 Net Operating Income 24 4,200 525,000 100% 225,000 43% 78,750 15% 303,750 58% 221,250 42% 21,000 9,000 54,000 113,000 197,000 24,250 $ 162,000 16% 20% #2 =3 #4 15 Required: Prepare a cash budget for the first year of operation in Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. 6 Percent of Sales 17 Estimated Sales 8 9 CASH BALANCE, Beginning 0 Collections from customers: #1 Cash Sales #2 Credit Sales 13 CASH AVAILABLE 4 Less: Cash Payments 45 Merchandise purchases (COGS) 16 #7 Advertising 18 Property Taxes Sales Commissions 9 Rent 50 Salaries & Wages 1 Equipment Purchase 2 Income tax Installment 6 3 4 Cash Excess (Deficiency) 5 Financing (Note 1) Total Disbursements Borrow Repayment of Principal (show as negative) 7 8 Net Financing 9 Cash Balance, Ending 0 1 Note 1: Financing Calculations 2 Cash excess (Deficiency) 3 Minimum cash balance 4 Amount to borrow (repay) Borrowing (Repayments) Rounded to 5 increment of $1,000 6 7 S Mountain Sports Cash Budget For the year ended December 31 28% $147,000 56,000 Quarter 2 29% $152,250 21% $110,250 4 22% $115,500 Year Summary 100% $525,000 Note from Instructor: Total sales amount taken from question 4. Remember to refer to question 4 as this cash budget is a continuation of the Canmore expansion introduced in Question 4. This will be important for the cash disbursements as welll 1 Question 5 -Cash Budget (30 marks) 2 3 456780 9 10 6 1. Beginning cash balance invested by owners 2. Sales by quarter (as % of total projected sales) Mountain Sports has aquired an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line of credit including any interest. 11 3. Type of collections from customers: 12 Cash Sales 13 Credit Sales (accounts receivable) 14 Management has provided the following list of assumptions to help in the preparation of the cash budget (note: you will need to use the projected income statement provided in Question 4 to complete the cash budget): 40% 60% C 20 5. Operating expenses 21 All other operating expenses (all expenses except cost of goods s 22 Quarter 1 27 8. Minimum cash balance 28 6. Required investment in equipment paid in cash in the first quarter 23 24 25 7. Quarterly income tax payments paid in cash 26 28% $ D Quarter 2 15 Cash sales are collected in the quarter of the sale, all credit sales are collected in the quarter after the sale. 16 17 4. Merchandise purchases $ 56,000 $ $ 29% Merchandise purchases (cost of goods sold) are all paid in the quarter following purchase. (Quarter 1 purchases are bought in Quarter 1 but 18 paid for in quarter 2). 19 E 138,000 8,000 Quarter 3 21,000 F 21% Quarter 4 22% 29 9. Borrowing and Repayments: Any borrowing will take place on the first day of the quarter and any repayments are paid at the end of the quarter. All borrowing and payments are made in increments of $1,000. Interest on borrowing can be ignored