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Please explain solutions using provided template Part 1 Riverside, Inc. forecasts the following sales for the second quarter of 2012, as well as actual March

Please explain solutions using provided template

Part 1

Riverside, Inc. forecasts the following sales for the second quarter of 2012, as well as actual March sales:

March (actual)

April

May

June

2nd Q. Total

$3,000

$4,000

$5,000

$6,000

$15,000

In addition:

a. The company makes 60% cash sales and 40% credit sales.

b. It collects all credit sales in the month after the sale.

c. The firm budgets $4,400 for monthly operating expenses. That amount includes $400 for depreciation.

d. The firm pays all of its cash-based expenses in the month incurred.

e. Riverside, Inc. had $100 of cash at March 31, 2012, and it must maintain a minimum $500 cash balance at the end of every month to ensure liquidity.

f. The company has a line of credit with its bank that allows borrowing in $100 increments at 12% interest. All borrowing takes place at the beginning of the month in which the company requires cash.

g. The company must repay principal in hundred dollar increments.

h. The credit facility requires Riverside, Inc. to repay all accrued interest to date whenever it repays principal.

i. Principal repayments and interest payments occur at the end of a month (funds permitting).

Required: Develop monthly and quarterly short-term financing budgets for the second quarter of 2012.

Part 2.

Use the sales forecasts from Part 1. above. Assume Riverside sells its only product for $10. The firm has monthly fixed costs of $600 and variable costs of $8 per unit.

a. Compute the monthly breakeven point.

b. Forecast monthly and quarterly operating incomes.

c. Assume Redlands could lower its variable costs to $7 per unit if it were willing to increase its fixed costs by $550 (to $1,150 per month). Based on its sales forecasts, should Redlands adopt the new cost structure?

Part 1.

April

May

June

2nd Q

Cash sales

Credit sales collected

Cash receipts

Cash monthly payments

Cash inflow (outflow)

Amounts in Thousands

April

May

June

2nd Q

Beginning cash balance

Net cash flow

Available cash

Borrowing needed

Repayment of principal

Payment of interest*

Net cash balance

Part 2.

a. Breakeven Point =

b. Monthly and Quarterly Operating Income

April

May

June

2nd Q. Total

Sales revenue

Variable cost (.8)

Contribution margin (.2)

Fixed cost

Pretax income

c. Proposal

April

May

June

2nd Q. Total

Sales revenue

Variable cost (.7)

Contribution margin (.3)

Fixed cost

Pretax income

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