Question
Retail outlets purchase snowboards from Sleds, Inc., throughout the year. However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from
Retail outlets purchase snowboards from Sleds, Inc., throughout the year. However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, Sleds' accountant projects 10% of invoices will be paid in the month invoiced, 55% Will be paid in the following month, and 35% of invoices will be paid 2 months after the month of invoice. The average selling price per snowboard is $ 550.
To meet demand, Sleds increases production from April through July because the snowboards are produced a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production forinventory, and no materials are purchased for inventory.
Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $10 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied.
Sleds,Inc., also incurs fixed manufacturing overhead costs of $5,900 per month and fixed nonmanufacturing overhead costs of $2,700 per month.
Direct Materials and Direct Manufacturing Labor Utilization and Cost | |||
Units per Board | Price per Unit | Unit | |
Wood | 7 | $31 | board feet |
Fiberglass | 6 | 10 | yard |
Direct manufacturing labor | 5 | 26 | hour |
The beginning cash balance for July 1, 2013, is $10,000.On October 1, 2012, Sleds had a cash crunch and borrowed $25,000 on a 66% 1-year note with interest payable monthly. The note is due October 1 2013
Requirement:
Prepare a cash budget for the months of July through September 20132013. Show supporting schedules for the calculation of receivables and payables. | |
2. | Will Sleds be in a position to pay off the $25,000 1-year note that is due on October 1, 2013? If not, what actions would you recommend to Sleds' management? |
3. | Suppose Sleds is interested in maintaining a minimum cash balance of $11,000. Will the company be able to maintain such a balance during all 3 months analyzed? If not, suggest a suitable cash management strategy. |
4. | Why do Sleds'managers prepare a cash budget in addition to the revenue, expenses, and operating income budget? |
Retail outlets purchase snowboards from Sleds, Inc., throughout the year. However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, Sleds' accountant projects 10% of invoices will be paid in the month invoiced, 55% Will be paid in the following month, and 35% of invoices will be paid 2 months after the month of invoice. The average selling price per snowboard is $ 550.
To meet demand, Sleds increases production from April through July because the snowboards are produced a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production forinventory, and no materials are purchased for inventory.
Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $10 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied.
Sleds,Inc., also incurs fixed manufacturing overhead costs of $5,900 per month and fixed nonmanufacturing overhead costs of $2,700 per month.
Direct Materials and Direct Manufacturing Labor Utilization and Cost | |||
Units per Board | Price per Unit | Unit | |
Wood | 7 | $31 | board feet |
Fiberglass | 6 | 10 | yard |
Direct manufacturing labor | 5 | 26 | hour |
The beginning cash balance for July 1, 2013, is $10,000.On October 1, 2012, Sleds had a cash crunch and borrowed $25,000 on a 66% 1-year note with interest payable monthly. The note is due October 1 2013
Requirement:
Prepare a cash budget for the months of July through September 20132013. Show supporting schedules for the calculation of receivables and payables. | |
2. | Will Sleds be in a position to pay off the $25,000 1-year note that is due on October 1, 2013? If not, what actions would you recommend to Sleds' management? |
3. | Suppose Sleds is interested in maintaining a minimum cash balance of $11,000. Will the company be able to maintain such a balance during all 3 months analyzed? If not, suggest a suitable cash management strategy. |
4. | Why do Sleds'managers prepare a cash budget in addition to the revenue, expenses, and operating income budget? |
Retail outlets purchase snowboards from Sleds, Inc., throughout the year. However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, Sleds' accountant projects 10% of invoices will be paid in the month invoiced, 55% Will be paid in the following month, and 35% of invoices will be paid 2 months after the month of invoice. The average selling price per snowboard is $ 550.
To meet demand, Sleds increases production from April through July because the snowboards are produced a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production forinventory, and no materials are purchased for inventory.
Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $ 10$10 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied.
Sleds,Inc., also incurs fixed manufacturing overhead costs of $5,900 per month and fixed nonmanufacturing overhead costs of $2,700 per month.
Direct Materials and Direct Manufacturing Labor Utilization and Cost | |||
Units per Board | Price per Unit | Unit | |
Wood | 7 | $31 | board feet |
Fiberglass | 6 | 10 | yard |
Direct manufacturing labor | 5 | 26 | hour |
The beginning cash balance for July 1, 2013, is $10,000.On October 1, 2012, Sleds had a cash crunch and borrowed $25,000 on a 66% 1-year note with interest payable monthly. The note is due October 1 2013
Requirement:
Prepare a cash budget for the months of July through September 20132013. Show supporting schedules for the calculation of receivables and payables. | |
2. | Will Sleds be in a position to pay off the $25,000 1-year note that is due on October 1, 2013? If not, what actions would you recommend to Sleds' management? |
3. | Suppose Sleds is interested in maintaining a minimum cash balance of $11,000. Will the company be able to maintain such a balance during all 3 months analyzed? If not, suggest a suitable cash management strategy. |
4. | Why do Sleds'managers prepare a cash budget in addition to the revenue, expenses, and operating income budget? |
overhead is incurred at the rate of $10 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied.
Sleds,Inc., also incurs fixed manufacturing overhead costs of $5,900 per month and fixed nonmanufacturing overhead costs of $2,700 per month.
Direct Materials and Direct Manufacturing Labor Utilization and Cost | |||
Units per Board | Price per Unit | Unit | |
Wood | 7 | $31 | board feet |
Fiberglass | 6 | 10 | yard |
Direct manufacturing labor | 5 | 26 | hour |
The beginning cash balance for July 1, 2013, is $10,000.On October 1, 2012, Sleds had a cash crunch and borrowed $25,000 on a 66% 1-year note with interest payable monthly. The note is due October 1 2013
Requirement:
Prepare a cash budget for the months of July through September 20132013. Show supporting schedules for the calculation of receivables and payables. | |
2. | Will Sleds be in a position to pay off the $25,000 1-year note that is due on October 1, 2013? If not, what actions would you recommend to Sleds' management? |
3. | Suppose Sleds is interested in maintaining a minimum cash balance of $11,000. Will the company be able to maintain such a balance during all 3 months analyzed? If not, suggest a suitable cash management strategy. |
4. | Why do Sleds'managers prepare a cash budget in addition to the revenue, expenses, and operating income budget? |
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