Question 7.1 (Total: 24 marks)

A cash budget, by quarter, is given below for a retail company (000 omitted). The company requires a minimum cash balance of $5,000 to start each quarter.

Required:

1. Fill in the missing amounts in the table that follows:

	Quarter
	1	2
Cash balance, beginning	$6	$
Add collections from customers	?	?
Total cash available	71	?
Less disbursements:
Purchase of inventory	35	45
Selling and administrative expenses	?	30
Equipment purchases	8	8
Dividends	2	2
Total disbursements	?	85
Excess (deficiency) of cash available over disbursements	(2)	?
Financing:
Borrowings	?	15
Repayments*	-	-
Total financing	?	?
Cash balance, ending	$?	$?
*For this exercise, assume there will be no interest on any borrowings.

Question 7.2 (Total: 24 marks)

Tiki Company has projected sales and production in units for the second quarter of the coming year as follows:

	April	May	June
Sales	50,000	40,000	60,000
Production	60,000	50,000	50,000

Cash-related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $100,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April. All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $500,000 ($90,000 from February's sales and the remainder from March).

Required:

1. Make a schedule for each month showing budgeted cash disbursements for Tiki Company.
2. Make a schedule for each month showing budgeted cash receipts for Tiki Company.

Question 7.3 (Total: 23 marks)

Halifax Souvenir Company currently orders 500 units four times each year. Each order costs $12 and each unit costs $1.20 per year to carry. On average, it takes 5 days to receive an order from the supplier. The company operates 250 days per year.

Required:

1. What is the EOQ?
2. Calculate total annual inventory cost under EOQ.
3. What is the current inventory cost?
4. What is the re-order point?

Question 7.4 (Total: 27 marks)

Sun Company manufacturers beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:

1. The Marketing Department has estimated sales as follows for the remainder of the year (in units):

July	30,000
August	70,000
September	50,000
October	20,000
November	10,000
December	10,000

The selling price of the umbrellas is $12 each.

1. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:

30%	In the month of sale
65%	In the month following sale
5%	uncollectable

Sales for June were $300,000

1. The company maintains finished goods inventories equal to 15% of the following month's sales. This requirement will be met at the end of June.
2. Each beach umbrella requires 1 meter of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 50% of the following month's production needs. The inventory of Gilden on hand at the beginning of the quarter is 18,000 meters.
3. Gilden costs $3.20 per meter. One-half of a month's purchases of Gilden is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $76,000.

Required:

1. Calculate the estimated sales, by month and in total, for the third quarter.
2. Calculate the expected cash collections, by month and in total, for the third quarter.
3. Calculate the estimated quantity of beach umbrellas that need to be produced in July, August, September and October.