Prepare a cash budget for a year P10.43A (L04) The Big Sister Company is in a seasonal business and prepares quarterly budgets. Its fiscal year runs from January 1 through December 31. Production occurs only in the first quarter (Jan- wary to March), but sales take place throughout the year. The sales forecast for the coming year shows the following: First quarter Second quarter $480,000 Third quarter $480,000 300,000 Fourth quarter 480,000 There are no cash sales, and the beginning balance of receivables is expected to be collected in the first quarter. Subsequent collections are two-thirds in the quarter when sales take place and one-third in the following quarter The company makes materials purchases valued at $400,000 in the first quarter, but makes no pur- chases in the last three quarters. It makes payment when it purchases the materials. Direct labour of $350,000 is incurred and paid only in the first quarter. Factory overhead of $340,000 is also incurred and paid in the first quarter, and is at a standby level of $100,000 during the other three quarters. Selling and administrative expenses of $35.000 are paid each quarter throughout the year. Big Sister has an operating line of credit with its bank at an interest rate of 5% per annum. The company plans to keep a cash balance of at least $10,000 at all times, and it will borrow and repay in multiples of $5,000. It makes all borrowings at the beginning of a quarter, and makes all payments at the end of a quarter. It pays interest only on the portion of the loan that it repays in a quarter. The company plans to purchase equipment in the second and fourth quarters for $70,000 and $150,000, respectively. The cash balance on January 1 is $25,000 and accounts receivable total $150,000. Instructions Prepare a cash budget for the year. Show receipts, disbursements, the ending cash balance before bor- rowing, the amounts borrowed and repaid, interest payments, and the ending cash balance. Ending cash balance: $11,687 Prepare a cash budget. *P10.44A (LO4) Rotech Co. began operations in January 2019. The information below is for Rotech Co.'s operations for the three months from January to March (the first quarter) of 2020: Expenses for Quarter 1 Depreciation Factory overhead Income taxes Payroll Selling costs (2% commission on sales) Administrative costs $35.000 15.000 25,000 29,000 12.000 15.000 Costs are assumed to be incurred evenly throughout the year, with the exception of depreciation and income taxes. Depreciation on new assets is first taken in the quarter after the quarter in which they are purchased. Income taxes are payable in semi-annual instalments on the first day of each six-month period, based on last year's actual taxes of $30,000. Other information: 1. Sales (made evenly throughout the quarter) Quarter 1 Quarter 2 Quarter 3 (actual) (forecast) (forecast) $600,000 400,000 800,000 Collections from sales are as follows: 50% in the quarter of sale; 45% in the following quarter, 5% uncollectible, This item was originally published by the Society of Management Accountants of Canada (CMA Canada) as an examination question. Adapted with permission of the Chartered Professional Accountants of Canada, Toronto, Canada. Any changes to the original material are the sole responsibility of the publisher and have not been reviewed or endorsed by the Chartered Professional Accountants of Canada. This item was originally published by the Certified General Accountants Association of Canada (CGA Canada) as an examination question. Adapted with permission of the Chartered Professional Accountants of Canada, Toronto, Canada. Any changes to the original material are the sole responsibility of the publisher and have not been reviewed or endorsed by the Chartered Professional Accountants of Canada. - Planning 2. Purchases (made evenly throughout the quarter) Quarter 1 (actual) $300.000 The gross margin ratio is constant at 40%. Cash payments for purchases are as follows: 50% in the quarter of purchase and 50% in the fol- lowing quarter. Merchandise purchased during a quarter would include 25% of the next quarter's forecast sales. 3. The company purchased capital equipment for $150,000 in February 2019. The estimated useful life of this equipment is 10 years; it has no estimated scrap value. 4. Dividends of $20,000 are declared on the last day of each quarter and are paid at the end of the next month 5. The cash balance in the bank at the end of the first quarter is $45,000. Instructions a. Prepare a cash budget for Rotech Co. for the second quarter of 2020. Show all your supporting calculations. b. List three advantages of budgeting