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SCENARIO: Pocket Jangle Corp. (PJC) manufactures keychains and is considering a level production model. The Finance Director at PJC wants to better understand how the current assets of the firm will fluctuate based on level production and seasonal sales. Each keychain sells for $2.00 and each cost $1.00 to produce. PJC's average monthly production is equal to their anticipated annual production volume divided by 12. The firm anticipates the following monthly sales (in dollars) for next year: January $20,000 February 15,000 March 5,000 April 3,000 May 1,000 June 3,000 July 10,000 August 14,000 September 20,000 October 25,000 November 30,000 December 22,000 Total $168,000 As the newly hired Finance Manager at PJC, you have been asked to prepare a cash budget and supporting schedules to help identify financing requirements, as well as, to report on the position of current assets during the period. COMPLETE THE FOLLOWING ASSIGNMENT QUESTIONS: A. Construct a monthly production and inventory schedule for January through December (in units). The firm is starting with 5,000 units of beginning inventory in January. Monthly Production=84000/12= 7000 B D= C/2 E=A+B+D Months Beginning Inventory Production Sales Sales Ending (Units) (Units) (Dollar) (Units) Inventory January 5000 7000 20000 10000 2000 February 2000 7000 15000 7500 1500 March 1500 7000 5000 2500 6000 April 6000 7000 3000 1500 11500 May 11500 7000 1000 500 18000 June 18000 7000 3000 1500 23500 July 23500 7000 10000 5000 25500 August 25500 7000 14000 7000 25500 September 25500 7000 20000 10000 22500 October 22500 7000 25000 12500 17000 November 17000 7000 30000 15000 9000 December 9000 7000 22000 11000 5000 Total 84000 168000 84000 B. Construct a cash receipt schedule for January through December (in dollars). Experience has shown that 20% of sales are collected in the month of the sale and 80% are collected in the month following the sale. Sales in December were $15,000. Cash receipt schedule: accounts receivable at the end of December = 15000 x 80%= 12000 A B EA x 20% D= B+C Months Sales Receipts from Cash Receipts from Accounts Total Cash (Dollar) Sales Receivable Receipts January 20000 4000 12000 16000 February 15000 3000 16000 19000 March 5000 1000 12000 13000 April 3000 600 4000 4600 May 1000 200 2400 2600 June 3000 600 800 1400 July 10000 2000 2400 4400 August 14000 2800 8000 10800 September 20000 4000 11200 15200 October 25000 5000 16000 21000 November 30000 6000 20000 26000 December 22000 4400 24000 28400 C. Construct a cash payment schedule January through December (in dollars). Production costs are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $6,000 per month. A= 7000 x $1 B C=A+B Months Payment for Production Other Cash Payments Total Payments January 7000 6000 13000 February 7000 6000 13000 March 7000 6000 13000 April 7000 6000 13000 May 7000 6000 13000 June 7000 6000 13000 July 7000 6000 13000 August 7000 6000 13000 September 7000 6000 13000 October 7000 6000 13000 November 7000 6000 13000 December 7000 6000 13000 Cash D. Construct a cash budget for January through December (in dollars). The beginning cash balance is $1,000, which is also equal to their required monthly minimum balance. Funds are borrowed from the bank when shortages exist and repaid when there is a cash surplus. A B C=A+B D E F GEC- D+E+F Months Beginning Cash Total Cash Brought Repaid Ending Balance Receipt Available Payment from bank to bank Balance January 1000 16000 17000 13000 0 4000 February 4000 19000 23000 13000 10000 March 10000 13000 23000 13000 10000 April 10000 4600 14600 13000 1600 May 1600 2600 4200 13000 9800 1000 June 1000 1400 2400 13000 11600 1000 July 1000 4400 5400 13000 8600 1000 August 1000 10800 11800 13000 2200 1000 September 1000 15200 16200 13000 2200 1000 October 1000 21000 22000 13000 8000 1000 November 1000 26000 27000 13000 13000 1000 December 1000 28400 29400 13000 9000 7400 1 E. Calculate total current assets for PJC for January through December (in dollars). Cash (+) AR (+) Inventory (5) Total Current Assets (month)... F. Will external financing be required for PJC in the coming year? If so, what is the total amount of short-term financing the firm will utilize? G. Which month is their cumulative loan balance at its highest? H. Which month is their inventory at its highest? 1. Will the firm be starting the following year in a higher or lower beginning cash position
