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Colorado Adventures, Inc., sells snowsport equipment. Maya Grenier is the controller for Colorado Adventures and put together the below initial cash budget for the fourth quarter of the year. Colorado Adventures, Inc. Cash Budget For the Quarter Ended December 31 November $ 20,000 318,000 338,000 December $ 20,000 370,000 390,000 Quarter $ 26,000 872,000 898,000 259,000 60,000 16,000 8,000 227,500 31,000 10,500 October Beginning cash balance $ 26,000 Add collections from customers 184,000 Total cash available 210,000 Less cash disbursements: Purchases for inventory 178,500 Marketing expenses 39,500 Administrative expenses 12,500 Land purchases Dividends paid 24,500 Total cash disbursements 255,000 Excess (deficiency) of cash available over disbursements (45,000 Financing: Borrowings 65,000 Repayments 0 Interest 0 Total financing 65,000 Ending cash balance $ 20,000 665,000 130,500 39,000 8,000 24,500 867,000 343,000 269,000 (5,000 121,000 31,000 25,000 0 0 25,000 $ 20,000 0 (90,000) (2,450 (92,450 $ 28,550 90,000 (90,000) (2,450 (2,450) $ 28,550 The company generally borrows money during this quarter to support peak sales. The above cash budget was based on assembling the following data: a. Budgeted monthly income statements for October-January are: November $450,000 315,000 135,000 December $ 250,000 175,000 75,000 January $ 200,000 140,000 60,000 October Sales $ 300,000 Cost of goods sold 210,000 Gross margin 90,000 Operating expenses: Marketing expense 39,500 Administrative expense e* 22,500 Total operating expenses 62,000 Net operating income $ 28,000 60,000 26,000 86,000 $ 49,000 31,000 20,500 51,500 $ 23,500 25,500 19,000 44,500 $ 15,500 *Includes $10,000 of depreciation each month. b. Each month, 20 percent of sales are for cash and 80 percent are on credit. The collection pattern for credit sales is 10 percent collected in the month of sale, 70 percent in the first month following the month of sale, and 20 percent in the second month following the month of sale. August's sales totaled $100,000, and September's sales totaled $150,000. c. Inventory purchases are on account. Of those purchases, 50 percent are paid in the month of purchase. The remaining 50 percent is paid in the following month. Accounts payable at September 30 for inventory purchases during September total $63,000. d. The merchandise inventory on October 1 is $42,000. The desired ending inventory for each month is 20 percent of the cost of the merchandise to be sold the next month. e. Dividends of $24,500 will be declared and paid in October. f. Land costing $8,000 will be purchased for cash in November. g. The cash balance on October 1 is $26,000. The company wants to have an ending cash balance of at least $20,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in increments of $500 at the beginning of each month. The interest rate on these loans is 1 percent per month (simple interestthat is, assume no compounding). The company would, as possible given minimum requirement, repay the loan plus accumulated interest at the end of the quarter. a. Colorado Adventure's president wants to know how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. She has asked Maya and her staff to revise the cash collection and ending inventory assumptions as follows: Credit sales still account for 80 percent of total sales. However, the collection period for October, November, and December credit sales is 30 percent collected in the month of sale, 60 percent collected in the month following sale, and 10 percent in the second month following sale. (Any credit sales from August and September collected during the fourth quarter use the collection percentages noted originally in the previous section.) b. The company maintains its ending inventory levels for October, November, and December at 12 percent of the cost of merchandise to be sold in the following month. (The merchandise inventory at October 1 remains $42,000 and accounts payable for inventory purchases at September 30 remains $63,000 as noted originally in the previous section.) In addition, the president is considering increasing dividends declared and paid in October by 50% and wants this reflected on the revised cash budget. Group member names 10 Colorado Adventures, Inc. DO NOT CHANGE THE FORMAT OTHER THAN ADDING FORMULASI Data: Income Statement October 300,000 210,000 90,000 November 450,000 315,000 135,000 December 250,000 175,000 75,000 January 200,000 140,000 60,000 Sales (5) Cost of goods sold Gross margin Operating expenses: Marketing expense Administrative expense Total operating expenses Net operating income "Includes depreciation each month of: 39,500 22,500 62,000 28,000 60,000 26,000 86,000 49,000 31,000 20,500 51,500 23,500 25,500 19,000 44,500 15,500 10,000 Other Cash, October 1 Merchandise inventory, October 1 Accounts payable, September 30 Inventory purchases paid in the month of purchase Inventory purchases paid in the month following the month of purchase August sales ($) September sales ($) Percentage of total sales in cash Percentage of total sales on credit Dividends Land purchase Monthly interest rate 26,000 42,000 63,000 0.5 0.5 100,000 150,000 0.2 0.8 24,500 8,000 0.01 Original Assumptions: Credit sales collected in the month of sale Credit sales collected in the first month following the month of sale Credit sales collected in the second month following the month of sale Desired ending inventory (percentage of cost of merchandise to be sold next month) 0.1 0.7 0.2 0.2 0.3 New Assumptions: Credit sales collected in the month of sale Credit sales collected in the first month following the month of sale Credit sales collected in the second month following the month of sale Desired ending inventory (percentage of cost of merchandise to be sold next month) Dividends increase 0.6 0.1 0.12 0.5 Quarter December November Requirement 1: Schedule of Expected Cash Collections October Pin Cash sales Sales on account: August September October November December Total cash collections Requirement 2: Merchandise Purchases Budget October Quarter November December nroou 28000 700000 280W 315000 Budgeted cost of goods sold Add desired ending merchandise inventory Total needs Less beginning merchandise Required inventory purchases @ 10000 (31500uYas) 6300U 35000 inventory (42000) Requirement 3: Schedule of Expected Cash Disbursements October November December Quarter Beginning accounts payable October purchases November purchases December purchases Total cash disbursements Quarter Requirement 4: Cash Budget December November October Beginning cash balance Add collections from customers Total cash available Less cash disbursements: Purchases for inventory Marketing expenses Administrative expenses Land purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements Financing Borrowings Repayments Interest Total financing Ending cash balance Financing Section Supporting Calculations Below, type in supporting calculations for borrowings, repayments, and/or interest, if any