Exercise 10.48 Hammocks and Swings, Ltd. has projected sales in units for four months of operations as follows: April 20,000 May 25,000 June 35,000 July August 30,000 40,000 The hammocks sell for $35 each. Fifty-five percent of the customers are expected to pay in the month of sale and take a 3% discount; 30% are expected to pay in the month following the sale; 13% are expected to pay two months following the sale. The remaining 2% will never pay. February sales totaled $70,000 and March sales totaled $350,000. It takes 3 metres of material to produce a hammock. The material cost is $5 per metre. In April, 10,000 metres of material are in beginning inventory; managers want to end each month with enough materials for 5% of the next month's production. The firm pays for 75% of its material purchases in the month of purchase and 25% in the following month. Materials paid for within the month of purchase are eligible for a 2% discount. It takes hours of 0.75 hours of labour to produce each hammock. Labour is paid $18 per hour and is paid in the same month as worked. Overhead is estimated to be $1.50 per unit plus $15,000 per month (including depreciation of $6,500). Overhead costs are paid as they are incurred. Hammocks and Swings will begin April with 2,000 hammocks in finished goods inventory and no work-inprocess inventory. The managers want to end each month with 10% of the following month's sales in finished goods inventory. They will end each month with no work in process. Selling and administrative expenses are estimated to be $0.50 per hammock sold plus $20,000 per month (including depreciation of $7,500). Your answer is partially correct. Try again. In the past, Hammocks and Swings has negotiated a line of credit with their bank. The terms of this agreement state an annual interest rate of 3%, borrowing must occur at the start of a month and repayment is accepted only at month-end; a minimum cash balance of $25,000 must be maintained to qualify for the line of credit. There are no restrictions on the amount that can be borrowed; however, there is a minimum repayment amount of 1% of the outstanding loan. Include this information in a cash budget for Hammock and Swings managers. April CASH BUDGET May June Total Cash Balance, Apr. 1 V Cash Collections TCash Available Cash disbursements TOverhead - Fixed Labour Selling & Admin. - Variable Selling & Admin. - Fixed Material Overhead - Variable Total cash disbursements Excess (Deficiency) Repayments - Principal V Repayments - Interest Borrowings X Cash Balance