MODULE 6:

Larry and Janice have retained an accountant to help them understand their cash position in their projected first year of operations (they plan to open their business on January 1, 2021). The accountant has reviewed their latest projections for 2021 and since they were planning to go ahead with their business, he was keen to help them prepare a cash budget for the first 6 months of 2021. She advised the Martins that it was imperative that they preserve liquidity in this first phase of their business.

Several assumptions need to be reflected in the cash budget. Revenues are estimated to be $30,000 per month; it is estimated that 40% of the customers would pay immediately while 60% would pay up between 30 and 60 days. Their COGS is estimated to be $11,000 per month and the accountant suggested that 50% of their COGS should be paid at the time of purchase with the remaining 50% delayed until the next month. Salaries at $9,000 per month, Lease Costs of $1,200 per month, Utilities of $300 per month, Office Supplies of $100 per month and Advertising of $200 per month need to be accounted for and paid out in each month. Federal Tax installments of $4,000 in March and $5,000 in June also need to be recorded.

Q1: If CompuTech will begin operations with a Cash Balance of $10,500 on January 1, 2021 please complete a Cash Budget for the Martins to share with their accountant.

Q2: What impact on the Cash Budget would an increase in COGS were to increase by 30% due to product sourcing problems arising from the pandemic? Further it is estimated that customers may delay their payments resulting in only 20% paying immediately with the remaining 80% carrying over until the second month as AR. What would the Martins have to plan for if the above issues unfolded?

350000 177000 173000 2 Balance sheet Assets current assets Trade receivables cash prepaid expense Inventories total of current assets property plant and equipment net of accumulated depreciation total of assets 35000 15000 5000 50000 1- Income statement Revenue cost of goods sold purchases 175000 freight in 2000 gross profit operating expenses sales salaries 80000 advertising 3000 travel expense 2000 sales commission 2000 depreciation 38000 total of operating expenses operating profit financing cost before tax profit tax expense met profit 105000 132000 237000 125000 48000 10000 38000 13000 25000 17000 5000 30000 Liabilities and shareholders equity accounts payable LTD retirement short term loans total of current liabilities long term liabilities total of liabilities shareholders equity share capital retained earning total of shareholders equity total of liabilities and shareholders equity 52000 60000 112000 100000 25000 125000 3. 237000 Accounts Sales Salaries: Advertising Fixed or variable Fixed Variable Travel variable Revenue variable Financing Costs: Fixed Freight-In: variable Income Taxes: Variable Sales Comin: Variable Depreciation: Fixed 4- cost of good sold purchase of raw 175000 material freight in 2000 cost of good 177000 sold