ch. 8 #2

Westex Products is a wholesale distributor of industrial cleaning products. When the treasurer of Westex Products approached the company's bank late in the current year seeking short-term financing, he was toid money was very tight and any borrowing over the next year would have to be supported by a detailed statement of cash collections and cisbursements. The treasurer also was told it would be very helpful to the bank if borrowers would indicate the quarters in which they need funds, as well as the amounts needed, and the quarters in which repayments could be made Because the treasurer is unsure as to the particular quarters in which bank financing will be needed, he assembled the following information to assist in preparing a detailed cash budget: a. Budgeted sales and merchandise purchases for next year, as well as actual sales and purchases for the last quarter of the current year, are: b All sales are on account. The company normally collects 65% of a quarter's sales before the quarter ends and another 33% in the following quarter. The remainder is uncollectible. This pattern of collections is now being experienced in the current year's fourth. quarter actual clata c. Eighty percent of a quarter's merchandise purchases are paid for within the quarter. The remainder is paid for in the followng quarter d. Selling and administrative expenses for next year are budgeted at $50,000 per quarter plus 15% of sales. Of the fixed amount. $20,000 each quarter is depreciation. e. The company will pay $10.000 in dividendis each quarter. f Land purchases of $75,000 will be made in the second quarter, and purchases of $48,000 will be made in the third quarter. These purchases will be for cash 9 The Cash account contained $10,000 at the end of the curtent year. The treasurer feels that this represents a minimum balance that must be maintained. h. The componys bank allows borrowing in increments of $1,000 of the beginning of each quarter, up to a total loan balance of $100,000. The interest rate on these ioans is 2.5% per quarter and, for simplicity, we will assume interest is not compounded. The company would, as far as it is oble, repay the loan plus accumulated interest at the end of the year 1. At present, the compony has no loans outstanding. Required: 1. Calculate the expected cash collections by quarter and in total for next year 2. Calculate the expected cash disbursements for merchandise purchases by quarter and in total for-next year. 3. Calculate the expected cash disbursements for selling and administrative expenses, by quarter and in total for next year. 3. Calculate the expected cash disbursements for selling and administrative expenses, by quarter and in total for next year. 4. Prepare a cash budget by quarter and in total for next year Complete this question by entering your answers in the tabs below. 1. Calculate the expected cash collections by quarter and in total for next year. 2. Calculate the expected cash disbursements for merchandise purchases by quarter and in total for next year: Complete this question by entering your answers in the tabs below. \begin{tabular}{|c|c|c|c|c|c|} \hline & First & Second & Third & Fourth & Year \\ \hline \multicolumn{6}{|c|}{ Beginning cash balance } \\ \hline \multicolumn{6}{|c|}{ Add collections from customers } \\ \hline \multicolumn{6}{|c|}{ Total cash available } \\ \hline \multicolumn{6}{|c|}{ Loss disbursomonts: } \\ \hline \multicolumn{6}{|c|}{ Merchandise purchases } \\ \hline \multicolumn{6}{|c|}{ Selling and administrative exponses } \\ \hline \multicolumn{6}{|c|}{ Dividends : } \\ \hline \multicolumn{6}{|l|}{ Land } \\ \hline \multicolumn{6}{|c|}{ Total cash disbursements: } \\ \hline \multicolumn{6}{|c|}{ Excess (deficiency) of cash available ovor disbursements } \\ \hline \multicolumn{6}{|l|}{ Financing } \\ \hline \multicolumn{6}{|l|}{ Borrowings: } \\ \hline \multicolumn{6}{|l|}{ Repayments } \\ \hline \multicolumn{6}{|l|}{ Interest } \\ \hline Total financing & & & & & \\ \hline \end{tabular} Add collections from customers Total cash available Less disbursements: Merchandise purchases Selling and administrative expenses Dividends Land Total cash disbursements Excess (deficiency) of cash avalable over disbursomonts Financing: Borrowings Ropayments Interest Total financing Ending cash batance