Retail outlets purchase snowboards from Slopes 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, Slopes accountant projects 20% of invoices will be paid in the month invoiced, 50% will be paid in the following month, and 30% of invoices will be paid two months after the month of invoice. The average selling price per snowboard is 450.

To meet demand, Slopes 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 for inventory, and no materials are purchased for inventory.

Slopes plans to purchase a delivery van in July 2019 amounting to 2,000. The van will not be put in use until October 2019.

The beginning cash balance for July 1, 2019, is 10,000. On October 1, 2018, Slopes had a cash crunch and borrowed 30,000 on a 6% one- year note with interest payable monthly. The note is due October 1, 2019. Using the information provided, you will need to determine whether Slopes will be in a position to pay off this short-term debt on October 1, 2019.

Questions

1.Prepare a cash budget for the months of July through September 2019.

2.Will Slopes be in a position to pay off the 30,000 one-year note that is due on October 1, 2019? If not, what actions would you recommend to Slopes management?

3.Suppose Slopes is interested in maintaining a minimum cash balance of 10,000. Will the company be able to maintain such a balance during all three months analysed? If not, suggest a suitable cash management strategy.

Projected Sales Units May June July August September October 80 120 200 100 60 40