I need help with part B

11/26/2018 Solution Chapter: Problem: 16 18 Rusty Spears, CEO of Rusty's Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts for the next two years. Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 15%; collections during the month following the sale, 65%; collections the second month following the sale, 20%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table. General and administrative salaries will amount to approximately $15,000 a month; lease payments under long-term lease contracts will be $5,000 a month; depreciation charges will be $7,500 a month; miscellaneous expenses will be $2,000 a month; income tax payments of $25,000 will be due in both September and December; and a progress payment of $80,000 on a new office suite must be paid in October. Cash on hand on July 1 will amount to $60,000, and a minimum cash balance of $40,000 will be maintained throughout the cash budget period. Input Data Collections during month of sale Collections during month after sale Collections during second month after sale Lease payments Target cash balance General and administrative salaries Depreciation charges Income tax payments (Sep & Dec) Miscellaneous expenses New office suite payment (Oct) Cash on hand July 1 15% 65% 20% $5,000 $40,000 $15,000 $7,500 $25,000 $2,000 $80,000 $60,000 Note: When the percent collected during the second month after sale is changed, the percent for collections during month after sale is automatically changed so that 100% of sales are collected during the three-month period. Sales, labor, and RM adjustment factor 0% a. Prepare a monthly cash budget for the last six months of the year. 34 May September October NovemberDecember January $100,000 $80,000 $60,000 $40,000 $30,000 $60,000 $50,000 $20,000 $20,000 $100,000 $80,000 $60,000 $40,000 $30,000 15000 12000 9000 6000 78000 65000 52000 39000 26000 24000 20000 16000 $119,000 $101,000 $81,000 $61,000 $80,000 $50,000 $20,000 $20,000 $70,000 $80,000 $50,000 $20,000 5 a. Prepare a monthly cash budget for the last six months of the year. 36 57 June July August 58 Original sales estimates $60,000 $100,000 $130,000 $120,000 9 Original labor and raw mat. estimat $75,000 $90,000 $95,000 $70,000 50 11 Forecasted Sales E2 Sales (gross) $60,000 $100,000 $130,000 $120,000 13 14 Collections 35 During month of sale 19500 18000 26 During 1st month after sale 65000 84500 17 During 2nd month after sale 12000 20000 18 Total collections $96,500 $122,500 29 50 Purchases 51 Labor and raw materials $75,000 $90,000 $95,000 $70,000 2 Payments for labor and raw materials $90,000 $95,000 53 54 Payments 15 Payments for labor and raw materials 90,000 95,000 56 General and administrative salaries 15,000 15,000 57 Lease payments 5,000 5,000 58 Miscellaneous expenses 2,000 2,000 59 Income tax payments 50 Design studio payment 51 Total payments $112,000 $117,000 52 53 Net Cash Flows 54 Cash on hand at start of forecast period $60,000 55 Net cash flow (NCF): Total collections - Total payments ($15,500) $5,500 56 Cumulative NCF: Prior month cumulative + this month's N$44,500 $50,000 57 58 Cash Surplus (or Loan Requirement) 59 Target cash balance $40,000 $40,000 10 Surplus cash or loan needed: Cum NCF - Target cash $4,500 $10,000 71 Max. Loan $49,000 73 70,000 60,000 50,000 20,000 15,000 15,000 15,000 15,000 5,000 5,000 5,000 5,000 2,000 2,000 2,000 2,000 25,000 25,000 80,000 $117,000 $162,000 $72,000 $67,000 $2,000 $61,000 $9,000 ($6,000) $52,000 ($9,000) $0 ($6,000) $40,000 $40,000 $40,000 $40,000 $12,000 ($49,000) ($40,000) ($46,000) 73 74 b. How much must Spears borrow each month to maintain the target cash balance? 75 76 78 c. Would the cash budget be accurate if inflows came in all during the month but outflows were bunched 79 early in the month? 30 31 Answer: 32 33 34 11/26/2018 Solution Chapter: Problem: 16 18 Rusty Spears, CEO of Rusty's Renovations, a custom building and repair company, is preparing documentation for a line of credit request from his commercial banker. Among the required documents is a detailed sales forecast for parts for the next two years. Estimates obtained from the credit and collection department are as follows: collections within the month of sale, 15%; collections during the month following the sale, 65%; collections the second month following the sale, 20%. Payments for labor and raw materials are typically made during the month following the one in which these costs were incurred. Total costs for labor and raw materials are estimated for each month as shown in the table. General and administrative salaries will amount to approximately $15,000 a month; lease payments under long-term lease contracts will be $5,000 a month; depreciation charges will be $7,500 a month; miscellaneous expenses will be $2,000 a month; income tax payments of $25,000 will be due in both September and December; and a progress payment of $80,000 on a new office suite must be paid in October. Cash on hand on July 1 will amount to $60,000, and a minimum cash balance of $40,000 will be maintained throughout the cash budget period. Input Data Collections during month of sale Collections during month after sale Collections during second month after sale Lease payments Target cash balance General and administrative salaries Depreciation charges Income tax payments (Sep & Dec) Miscellaneous expenses New office suite payment (Oct) Cash on hand July 1 15% 65% 20% $5,000 $40,000 $15,000 $7,500 $25,000 $2,000 $80,000 $60,000 Note: When the percent collected during the second month after sale is changed, the percent for collections during month after sale is automatically changed so that 100% of sales are collected during the three-month period. Sales, labor, and RM adjustment factor 0% a. Prepare a monthly cash budget for the last six months of the year. 34 May September October NovemberDecember January $100,000 $80,000 $60,000 $40,000 $30,000 $60,000 $50,000 $20,000 $20,000 $100,000 $80,000 $60,000 $40,000 $30,000 15000 12000 9000 6000 78000 65000 52000 39000 26000 24000 20000 16000 $119,000 $101,000 $81,000 $61,000 $80,000 $50,000 $20,000 $20,000 $70,000 $80,000 $50,000 $20,000 5 a. Prepare a monthly cash budget for the last six months of the year. 36 57 June July August 58 Original sales estimates $60,000 $100,000 $130,000 $120,000 9 Original labor and raw mat. estimat $75,000 $90,000 $95,000 $70,000 50 11 Forecasted Sales E2 Sales (gross) $60,000 $100,000 $130,000 $120,000 13 14 Collections 35 During month of sale 19500 18000 26 During 1st month after sale 65000 84500 17 During 2nd month after sale 12000 20000 18 Total collections $96,500 $122,500 29 50 Purchases 51 Labor and raw materials $75,000 $90,000 $95,000 $70,000 2 Payments for labor and raw materials $90,000 $95,000 53 54 Payments 15 Payments for labor and raw materials 90,000 95,000 56 General and administrative salaries 15,000 15,000 57 Lease payments 5,000 5,000 58 Miscellaneous expenses 2,000 2,000 59 Income tax payments 50 Design studio payment 51 Total payments $112,000 $117,000 52 53 Net Cash Flows 54 Cash on hand at start of forecast period $60,000 55 Net cash flow (NCF): Total collections - Total payments ($15,500) $5,500 56 Cumulative NCF: Prior month cumulative + this month's N$44,500 $50,000 57 58 Cash Surplus (or Loan Requirement) 59 Target cash balance $40,000 $40,000 10 Surplus cash or loan needed: Cum NCF - Target cash $4,500 $10,000 71 Max. Loan $49,000 73 70,000 60,000 50,000 20,000 15,000 15,000 15,000 15,000 5,000 5,000 5,000 5,000 2,000 2,000 2,000 2,000 25,000 25,000 80,000 $117,000 $162,000 $72,000 $67,000 $2,000 $61,000 $9,000 ($6,000) $52,000 ($9,000) $0 ($6,000) $40,000 $40,000 $40,000 $40,000 $12,000 ($49,000) ($40,000) ($46,000) 73 74 b. How much must Spears borrow each month to maintain the target cash balance? 75 76 78 c. Would the cash budget be accurate if inflows came in all during the month but outflows were bunched 79 early in the month? 30 31 Answer: 32 33 34