Petite Sirne inc. is a small company specializing in the manufacture of plastic pools.

plastic pools. Its president, your cousin, is trying to forecast cash flow for July and August (20X1).

July and August (20X1). Knowing that you studied accounting this summer at university, she

She knows that you studied accounting at university this summer, so she is asking you to help her with her cash flow planning.

Here is the information she has given you about the Little Mermaid's business;

1. The sales budget for July 20X1 is 1,000 pools, while the budget for July 20X2 is 2,500 pools.

2,500 pools for the month of August, when the company has its summer liquidation at a special price.

August, when the company has its summer clearance sale at a special price of $200 per pool. The regular selling price for the entire

The regular selling price for the entire 20X1 year is $240 per unit. Total sales for June are expected to reach

288,000, while in the months of September, October and November your cousin

expects monthly sales of only 500 pools. The sales are made

evenly throughout the month.

2. Gross receivables as of June 30, 20X1 should be $324,000.

3. The collection profile of Petite Sirne's accounts receivable is such that 20% of sales are

sales are collected in the month of the sale, allowing customers to benefit from a

discount on their purchases; 50% of sales are collected in the month following the month of sale and the remainder in the month following the month of sale.

the month following the month of the sale and the remainder of the sales are collected in the 2* month following the month

the month of the sale. From experience, your cousin estimates the amount of bad debts at 1% of total sales.

1% of total sales. Accounts receivable are written off after two months of being

past due.

4. The company's finished goods policy calls for a stock at the end of each month equal to 50% of the

The company's finished goods policy calls for a stock at the end of each month equal to 50% of the next two months' sales.

5. The Little Mermaid's policy is to buy the raw materials needed for the month's production at the beginning of the month.

necessary for the month's production. Its supplier offers a one-month payment period, so that the

The supplier offers a one-month payment period, which means that the supplier is paid the month following the purchase.

6. The manufacturing cost per unit is as follows:

d -4 -The unit production cost is as follows:

Plastic

5 kg to $6/kg

30,00 S

Direct labour* 5 h to 16

5 h to 16 5/h

80,00 $

Manufacturing overheads

5 hr to 6 S/hr

30,00 S

140,00 $

* Direct labour is payable in the month it is incurred.

Variable FGFs (are paid in the month they are incurred)

Fixed FGF

Wages (distributed and paid evenly each month)

Taxes (payable in 2 equal instalments in May and November)

Insurance (payable in 2 equal instalments in January and July)

Depreciation charge

Miscellaneous expenses (allocated and paid evenly each month)

Total manufacturing overheads

Estimated direct labour hours (per 10,000 pools)

100 000 S

108 000

12000

10 000

46 000

24 000

200 000 5

300 000 S

50,000 hours

8. The total sales and administration costs consist of a commission to the sellers of 5% of the sales.

of sales. Commissions are paid in the month following the month of sale.

The commissions are paid in the month following the month of the sale.

9. In August the company will sell an old truck that cost $52,000 at the time for cash.

52,000, the truck's accumulated depreciation at the time of sale will be

40,164, and your cousin expects to realize an accounting gain of $2,164.

10. Your cousin has negotiated a line of credit of up to $50,000 that bears interest at 6% per year.

at a rate of 6% per year. Interest is calculated on the balance at the end of the month and paid on the 15th of the following month.

paid on the 15th of the following month. The bank requires Little Mermaid to maintain a minimum cash balance of

balance of $10,000 at the end of each month. Your cousin expects that on

July 1, 20X1 (equivalent to June 30, 20X1), the cash balance will be $10,000 and

the balance of the line of credit used will be $20,000.

11. 11. Petite Sirne's dividend policy provides for two equal payments of $60,000 to shareholders on July 15 and June 15.

to shareholders on July 15 and December 15 of each year.

Practical work

Present the cash budget of Petite Sirne Inc. for the months of July and August 20X1