Question 3 only.

Question 3 (25 marks) A cash budget is being prepared for Hotels Inc for the month of May. The following information has been gathered to assist in preparing the budget: a. Budgeted sales and production requirements are as follows: Budgeted Sales $ 650,000 Production requirements Raw material to be used $ 301,000 Direct labour cost 85,000 b. Customers are allowed a 2% cash discount on accounts paid within 10 days after the end of the month of sale. Only 50% of the payments made in the month following sale fall within the discount period. C. Accounts receivable outstanding at April 30 were as follows: Month Sales Accounts Percentage Percentage to receivable at of sales be collected April 30 Uncollected in May at April 30 $ 8,500 2.5% ? January February March April $ 340.000 530,000 470.000 550,000 31.800 47.000 550.000 6.0% 10.0% 100.0% 2 ? ? All January receivables outstanding will be collected in May and the collection pattern since the time of the sale will be the same in May as in previous months. d. Raw material purchases are paid in the month following the purchase and S 320,000 in accounts payable for purchases was outstanding at the end of April. e. Accrued wages on April 30 were $ 11,000. All May payroll amounts will be paid within the month of May. f Budgeted operating expenses and overhead cost for May are as follows: Total Overhead and other charges Indirect labour Property taxes Depreciation Utilities Wage benefits Fire insurance expired Amortization of patents $ 34.000 1,500 25.000 1.500 9.000 1,500 5,000 Spoilage of materials in 1,500 $ 79000 the ware house Sales Salaries 45.000 Administrative salaries 15,000 g. Property taxes are paid in July of each year. h. Utilities are billed and paid within the month. i. Shipping cost for May will be $1,000 all payable in the month. The cash balance at April 30th was $5,750. J. Required 1. Prepare a Cash collections schedule for the month of May. 2. Prepare a cash budget for May in good form. Hotels Inc require a minimum cash balance of $5,500 at the end of each month and therefore a line of credit is set up to allow for borrowings to cover any deficiency in the ending cash balance. Question 4(20 Marks) Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $15 per ball. Last year, the company sold 30,000 of these balls, with the following results: Sales (30.000 balls. Less variable expenses... $750,000 450,000 Contribution margin. Less fixed expenses. 300,000 210,000 Net operating income. $ 90,000 Required: 1. Compute (a) the CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that variable costs will increase by S2.75 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new CM ratio and break-even point in balls