Requirements 1. Prepare a budget for January with the following table. Combine variable company expenses into one lump sum. Combine fixed company expenses into one lump sum. (10 points) BUDGET JAN Earnings Cost of Construction Labor Material Subcontracts Other Direct Costs (JOH) Total Direct Cost Gross Profit Variable Operating Expense Fixed Operating Expense Total Operating Expense Net Profit (bo 2. Prepare the collections on accounts receivable worksheet for January and February. Do not include retention receivable. Calculate the average age of accounts receivable (AAAR) for 2008 by referring to the American Construction, Inc. financial statements found in the Table 4 and Table 5. Please show your calculation process of AAAR. (10 points) AMERICAN CONSTRUCTION COLLECTION ON ACCOUNTS RECEIVABLE (Period Ending 12/31/09) Forecasted Amount Colected by Month Eamings Amount JAN FEB Month Last Year (2008 Actual) Sept Oct Nov Dec This Year (2009 Budgeted) Jan Feb December Total CASE DATA: The management of American Construction, Inc. understands that there are two basic problems associated with cash flow: 1. Generating a sufficient supply of cash to pay bills when they become due. 2. Establishing a plan so that cash can be used efficiently in order to produce greater profits and generate more cash. American must prepare a cash flow projection for the budget period in order to forecast the following: 1. The amount of cash needed to fund work-in-progress. 2. The timing of expected borrowing. 3. The timing of the payment of the loan. 4. The projected date when the loan (less interest) can be paid in full. Last year, 2008, the company experienced a loss and had some cash flow difficulties. In order to avoid the cash trap again, the company establishes a minimum cash balance goal of $300,000. The company predicts that computer equipment valued at $10,000 will be purchased with cash in May. Payment of estimated federal tax occurs as follows: April, June, September, and December for corporations using the calendar year as the fiscal period. Each payment is one-fourth the budgeted profit. In addition, the company expects to pay $50,000 in dividends to the owners in December. Monthly sales for the company as a percent of total budgeted sales for the year are found in Table 1. (Even though previous American fiscal periods begin April 1 to allow for comparison with published annual statement studies, assume that American's fiscal year begins in January for this case.) Table 1 Monthly sales as a percent of total sales Month January February March % 2 3 7 9 Month May June July August % 10 12 14 13 Month September October November December % 12 9 6 3 April The budget for 2009 is found in Table 2 and income statements for the last four months of 2008 are found in table 3. The balance sheets for the last four years are shown in Table 4 and the income statements are shown in Table 5. 1/5 Table 2 American Annual Budget Company $ 8.500.000 % 100.00 1360,000 3 145,000 2.550,000 170,000 7,225,000 1,275,000 16.00 3700 30.00 200 85,00 15.00 Account Earnings (revenue) Cost of Construction Labor Material Subcontracts Other Direct CON JOH) Total Direct Cost Gross Profit Operating Expense Variable Operating Expense Auto and Truck Communications Insurance Work in progress) Interest (Work in progress) Other Variable Expense Total Variable Expense Fixed Operating Expense Contributions Depreciation Auto and Truck) Depreciation Building) Insurance Auto and Truck) Interest (Auto and Truck) Ront Salaries Other Fixed Expense Total Fixed Expense Total Operating Expense Net Profit (before tax) Tax (289) Net Profit after tax) 127,500 51,000 85,000 201,450 17.00 481,950 150 0.60 1.00 2.37 020 5.67 0.07 O B5 0.04 040 6,000 72.000 3.000 34.000 20.000 46.000 345.000 12.000 538,000 1,019.950 255,050 71,414 1836361 0.24 0.54 4.06 0.14 6.33 12.00 3.00 0.84 2.16 11/30/08 600.000 12/31/08 300,000 Table 3 Monthly income statements (9/30708 through 12/31/08) Account 9/30/08 10/31/08 Farnings 1.200,000 900,000 Cost of Construction Labor 192,000 144,000 Material 480.000 360,000 Subcontracts 38-4.000 288,000 Other direct cost 24.000 18,000 Total Direct Cost 1,080.000 810,000 Gross Profit 120,000 90.000 Operating Expense Variable 42.00 31.500 Fixed 58,000 58,000 Total Operating Expense 100,000 89.000 Net Profit (t) 20.000 500 Tax (28%) 5.600 140 Net Profit(at) 14.400 360 96,000 240,000 192.000 12,000 540.000 60,000 48,000 120.000 96,000 6.000 270,000 30.000 21.000 58.000 79,000 10,500 58,000 68,500 10,500 58,000 68,500