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6. Cash budget Hansborough Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They
6. Cash budget Hansborough Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year. The following budget assumptions were used to construct the budget: Hansborough's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Hansborough's sales are made on credit with terms of 2/10, net 30. Hansborough's experience is that 25% is collected from customers who take advantage of the discount, 65% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 55% of Hansborough's finished product. The purchases are generally made one month in advance of the sale, and Hansborough pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $726 ($1,320 million x 0.55), and this amount would be paid in July. Other cash expenses include wages and salaries at 19% of sales, monthly rent of 548 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 million payment for a new plant must be made in September Assume that Hansborough's targeted cash balance is $167, and the estimated cash on hand on July 1 is $167. Chapter 13.pdf SSRN-id 1464471.pdf 9 Chapter 12.pdf Use the preceding information to fill in the missing amounts in the following cash budget. Hansborough Company Cash Budget For the Six Months Ended December 31, Year 1 ($ millions) October November December May 51,140 June $1,176 July $1,200 $1,260 $1,296 $1,320 Credit sales Credit purchases 660 August September $1,212 $1,236 680 693 August September 713 726 July October December Cash receipts Collections from this month's 294 297 303 309 318 323 sales 780 788 803 819 842 Collections from previous month's sales Collections from sales two months previously Total cash receipts 118 120 121 124 126 $1,195 $1,211 $1,233 $1,261 $1,291 2 Chapter 13.pdf SSRN-id 1464471.pdf Chapter12.pdf Cash disbursements 667 680 Payments for credit purchases Wages and salaries 230 251 235 48 Rent 48 Other expenses 62 Taxes 1,200 $2,225 $1,066 $1,006 $1,072 $1,091 $106 -$1,014 $189 Payment for plant construction Total cash disbursements Net cash flow (Receipts - disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash 167 462 -435 $189 273 5462 167 $295 $273 167 $106 $117 -552 -$435 167 $602 -$246 $200 -246 -$46 167 -$213 - 167 -$413 Use the information provided in the budget to complete the following sentences. Hansborough Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Hansborough will s t o end the year with a cash of $ and a cach Hanchorush Camnany will want a credit line of at least to caurer the month 9 Chapter 13.pdf SSRN id 1464471.pdf Chapter 12.pdf Payment for plant construction 1,200 $2,225 Total cash disbursements $1,066 $1,006 $1,072 $1,091 Net cash flow $189 $189 $200 -$1,014 462 -246 (Receipts - disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash $106 167 $273 167 $117 -552 -$435 167 273 $462 167 $295 -435 -5246 167 -546 167 -5213 $106 -$602 -5413 Use the information provided in the budget to complete the following sentences. Hansborough Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Hansborough will to end the year with a cash of $ and a cash of $ Hansborough Company will want a credit line of at least $ to cover the month with the greatest shortfall, and the financial managers can tell the bank to expect that they will be able to invest up to $ In short-term marketable securities. Grade It Now Save & Continue Continue without saving Chapter 13.pdf A 9 SSRN-id 1464471.pdf 9 Chapter 12.pdf FKTRX 6. Cash budget Hansborough Company's financial managers are meeting with the company's bank to renew their line of credit and discuss their investment needs. They have prepared the company's operating cash budget for the last six months of the year. The following budget assumptions were used to construct the budget: Hansborough's total sales for each month were first calculated in the sales budget and are reflected on the first line of the cash budget. Hansborough's sales are made on credit with terms of 2/10, net 30. Hansborough's experience is that 25% is collected from customers who take advantage of the discount, 65% is collected in the second month, and the last 10% is collected in the third month after the sale. The budget assumes that there are no bad debts. The cost of materials averages 55% of Hansborough's finished product. The purchases are generally made one month in advance of the sale, and Hansborough pays its suppliers in 30 days. Accordingly, if July sales are forecasted at $1,320 million, then purchases during June would be $726 ($1,320 million x 0.55), and this amount would be paid in July. Other cash expenses include wages and salaries at 19% of sales, monthly rent of 548 million, and other expenses at 5% of sales. Estimated tax payments of $70 million and $73 million are required to be paid on July 15 and October 15, respectively. In addition, a $1,200 million payment for a new plant must be made in September Assume that Hansborough's targeted cash balance is $167, and the estimated cash on hand on July 1 is $167. Chapter 13.pdf SSRN-id 1464471.pdf 9 Chapter 12.pdf Use the preceding information to fill in the missing amounts in the following cash budget. Hansborough Company Cash Budget For the Six Months Ended December 31, Year 1 ($ millions) October November December May 51,140 June $1,176 July $1,200 $1,260 $1,296 $1,320 Credit sales Credit purchases 660 August September $1,212 $1,236 680 693 August September 713 726 July October December Cash receipts Collections from this month's 294 297 303 309 318 323 sales 780 788 803 819 842 Collections from previous month's sales Collections from sales two months previously Total cash receipts 118 120 121 124 126 $1,195 $1,211 $1,233 $1,261 $1,291 2 Chapter 13.pdf SSRN-id 1464471.pdf Chapter12.pdf Cash disbursements 667 680 Payments for credit purchases Wages and salaries 230 251 235 48 Rent 48 Other expenses 62 Taxes 1,200 $2,225 $1,066 $1,006 $1,072 $1,091 $106 -$1,014 $189 Payment for plant construction Total cash disbursements Net cash flow (Receipts - disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash 167 462 -435 $189 273 5462 167 $295 $273 167 $106 $117 -552 -$435 167 $602 -$246 $200 -246 -$46 167 -$213 - 167 -$413 Use the information provided in the budget to complete the following sentences. Hansborough Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Hansborough will s t o end the year with a cash of $ and a cach Hanchorush Camnany will want a credit line of at least to caurer the month 9 Chapter 13.pdf SSRN id 1464471.pdf Chapter 12.pdf Payment for plant construction 1,200 $2,225 Total cash disbursements $1,066 $1,006 $1,072 $1,091 Net cash flow $189 $189 $200 -$1,014 462 -246 (Receipts - disbursements) Beginning cash balance Ending cash balance Target (minimum) cash balance Surplus (shortfall) cash $106 167 $273 167 $117 -552 -$435 167 273 $462 167 $295 -435 -5246 167 -546 167 -5213 $106 -$602 -5413 Use the information provided in the budget to complete the following sentences. Hansborough Company will be able to invest in short-term marketable securities in some months and will need to borrow to cover cash requirements in others. In the last six months of the year, Hansborough will to end the year with a cash of $ and a cash of $ Hansborough Company will want a credit line of at least $ to cover the month with the greatest shortfall, and the financial managers can tell the bank to expect that they will be able to invest up to $ In short-term marketable securities. Grade It Now Save & Continue Continue without saving Chapter 13.pdf A 9 SSRN-id 1464471.pdf 9 Chapter 12.pdf FKTRX
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