Assume that the five owners of Mountain Sports Ltd. decide to collectively invest personal funds into the Canmore expansion (this is a continuation of question 4). Mountain Sports will require 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 credit plus interest within a year 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): 14 1. Beginning cash balance invested by owners $ 55,000 7 8 Quarter 1 Quarter 2 Quarter 3 Quarter 4 2. Sales by quarter (as % of total projected sales) 9 23% 25% 26% 26% 10 11 3. Type of collections from customers 12 Cash Sales 44% 13 Credit Sales (accounts receivable) 56% 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 Merchandise purchases (cost of goods sold) are all paid in the quarter following purchase. (Quarter I purchases are 18 bought in Quarter 1 but paid for in quarter 2). 19 20 5. Operating expenses 21 All other operating expenses (all expenses except cost of goods sold) are paid on a monthly basis. 22 6. Required investment in equipment paid in cash in the first 23 quarter 131,000 24 25 7. Quarterly income tax payments paid in cash 8.000 8. Minimum cash balance 25.000 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. 0 31 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. 32 33 34 35 36 Percent of Sales 37 Estimated Sales 38 Mountain Sports Cash Budget For the year ended December 31st Quarter 2 3 239 25% 26% $116.380 $126,500 $131,560 4 Year Summary 100% $506,000 26% $131 560 39 CASH BALANCE, Beginning $ 55,000 40 Collections from customers 41 Cash Sales 42 Credit Sales 43 CASH AVAILABLE 44 Less: Cash Payments 45 Merchandise purchases (COGS) Merchandise purchases (COGS) Sales Commissions Advertising Property Taxes Rent Salaries & Wages Equipment Purchase Income tax Installment Total Disbursements 3 Cash Excess (Deficiency) -5 Financing (Note 1) 56 Borrow Repayment of Principal (show as negative) 57 58 Net Financing 59 Cash Balance, Ending 60 61 Note 1: Financing Calculations 62 Cash excess (Deficiency) 63 Minimum cash balance 64 Amount to borrow (repay) 0 0 onto Total Disbursements Cash Excess (Deficiency) Financing (Note 1) Borrow Repayment of Principal (show as negative) Net Financing Cash Balance, Ending . 0 0 0 Note 1: Financing Calculations e Cash excess (Deficiency) 3 Minimum cash balance 4 Amount to borrow (repay) Borrowing (Repayments) 5 Rounded to increment of $1,000 -6 57 58 59 30 71 72 Management has provided the following income statement to the bank manager the ex Static Budget % Amount Sales in Units 4,048 Sales 506,000 100% Less: Variable Costs: Cost of Goods Sold 216,000 43% + Sales Commissions 55,660 11% 5 Total Variable Costs 271,660 54% 5 Contribution Margin 234,340 46% 7 Less: Fixed Costs: 8 Advertising 21,000 9 Property Taxes 9,000 CO Rent 42,000 21 Salaries & Wages 108,000 22 Total Fixed Costs 180,000 23 Net Operating Income 54.340 24