420 Problem 9-44 Comprehensive Master Bud get: Borrowing Acquisition of Automated Material Handling System LO 9-2, 9-3,9-5, 9-6) 2. Total cash receipts, first quarter $1.367030 4. Total cash disbursements first quarter: $1.213.576 6. Required short-term bor- rowing: $100,000) 7. Net income $160.656 Chapter 9 Financial Planning and Analysis: The Master Budget "We really need to get this new material-handling equipment in operation just after the new year begins I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short- term loan down at MetroBank." This statement by Beth Davies-Lowry, president of Intercoastal Electron ics Company, concluded a meeting she had called with the firm's top management. Intercoastal is a small rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcon, Intercoastal's general manager of marketing, has recently completed a sales forecast. She believes the company's sales during the first quarter of 2011 will increase by 10 percent each month over the previous month's sales. Then Wilcox expects sales to remain constant for several months. Intercoastal's projected balance sheet as of December 31, 2010, is follow Cash Accounts recevable Marketable scurbes Inventory Buildings and equipment of accumulated depreciation). Total assets Accounts payable Bond interest payable Property taxes payable Bonds payable (10% due in 2016) Common stock Retained eamings. $ 25.000 270,000 15.000 154000 626.000 $1.100.000 $176.400 12.500 1600 300000 500.000 107.500 Total Sabines and stocksiders equity Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 2011. In the process, the following information has been accumulated: 1. Projected sales for December of 20x0) are $400,000. Credit sales typically are 75 percent of total sales. Intercoastal's credit experience indicates that 10 percent of the credit sales are collected dur ing the month of sale, and the remainder are collected during the following month 2. Intercoastal's cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month's purchases are paid during the month of purchase The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month's projected cost of goods sold. 3. Hanson has estimated that Intercoastal's other monthly expenses will be as follows: Sales salaries Advertising and promotion Administrative salaries. Deprecation Interest on bonds Property taxes $21,000 16.000 21,000 25.000 2500 900 In addition, sales commissions run at the rate of 1 percent of sales 4. Intercoastal's president, Davies-Lowry, has indicated that the firm should invest $125,000 in an automated inventory-handling system to control the movement of inventory in the firm's ware- house just after the new year begins. These equipment purchases will be financed primarily from the firm's cash and marketable securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of $25,000. If necessary, the remainder of the equipment pur- chases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loun is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible. 5. Intercoastal's board of directors has indicated an intention to declare and pay dividends of $50,000 on the last day of each quarter. 6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Inter- coastal's bonds is paid semiannually on January 31 and July 31 for the preceding sis-month period. 7. Property taxes are paid semiannually on February 28 and August 31 for the preceding six- month period.