Spicer Corporation Financial Details Spicer Corporation would like to prepare a cash budget in order to determine the company's financing needs for the upcoming year. The beginning cash balance is $161,250. The sales for the upcoming year: Spicer CorporationSales Budget for the Year Ending December 31, 20XX First Quarter Second Quarter Third Quarter Fourth Quarter Projected Units to Be Sold 1,525 1,675 1,775 1,550 Sales Price Per Unit $275 $275 $275 $275 Projected Revenue $419,375 $460,625 $488,125 $426,250 All sales are on account. It is reported that accounts receivable are collected 65 percent in the quarter of the sale and 35% in the quarter after sale. The beginning accounts receivable is $142,000. All purchases are made on account. The company pays 100 percent of the accounts payable each quarter. The purchases are related to the inventory needed to sell each month. On average the inventory costs $195 per unit to produce. It is estimated that enough inventory is purchased each quarter to cover the projected quarterly sales only. The beginning Accounts Payable is $0. 2 Additional quarterly expenses include the following: Operating Expenses for the Year Ending December 31, 20XX First Quarter Second Quarter Third Quarter Fourth Quarter Sales and Wages $55,625 $55,450 $54,675 $56,285 Advertising $1,200 $1,500 $900 $2,000 Utilities $2,700 $2,700 $2,700 $2,700 Rent $6,000 $6,000 $6,000 $6,000 Total $65,525 $65,650 $72,375 $66,985 On the balance sheet, Spicer Corporation reports a note payable of $165,000. The principal plus interest is due on April 30. Until then interest payments are made each month. The note has an annual interest rate of 6%. It is projected that in October of the current year, Spicer will need to purchase a new machine in order to replace an outdated machine. The new machine will cost $50,000. The purchase is expected to be made with cash. Spicer Corporation currently has a line of credit of $1 million that can be used to cover any deficiencies. The line of credit has a 4% annual interest rate. Interest payments must be made at the end of each quarter when there is a balance outstanding. Borrowings must be made in increments of $10,000. It is standard practice that line of credit will be paid when there is surplus of the minimum cash balance in increments of $5,000. Spicer Corporation would like to prepare a cash budget in order to determine the company's financing needs for the upcoming year. The beginning cash balance is $161,250. The sales for the upcoming year: Spicer CorporationSales Budget for the Year Ending December 31, 20XX First Quarter Second Quarter Third Quarter Fourth Quarter Projected Units to Be Sold 1,525 1,675 1,775 1,550 Sales Price Per Unit $275 $275 $275 $275 Projected Revenue $419,375 $460,625 $488,125 $426,250 All sales are on account. It is reported that accounts receivable are collected 65 percent in the quarter of the sale and 35% in the quarter after sale. The beginning accounts receivable is $142,000. All purchases are made on account. The company pays 100 percent of the accounts payable each quarter. The purchases are related to the inventory needed to sell each month. On average the inventory costs $195 per unit to produce. It is estimated that enough inventory is purchased each quarter to cover the projected quarterly sales only. The beginning Accounts Payable Part A Assume management wants to maintain a minimum cash balance of $50,000. Prepare a cash budget, including a supplement schedule for cash receipts, for Spicer Corporation's upcoming year. Use the attached cash budgeting template. Part B After completing Spicer's cash budget, draft a memo to management explaining the general purpose of a cash budget and its relationship to operational goals. As part of the memo, identify at least three key aspects of the current cash budget that management should note. For each key aspect, be sure to discuss how the overall cash budget will be impacted if there is a change in the expectation. Use the Memo Template to structure your memo. Part C After completing and analyzing the cash budget, Spicer's management felt confident that the financing requirements and short-term goals could be met. Unfortunately, due to a declining economy, the budgeted sales were not met. The actual sales were 5 percent lower than budgeted for second quarter, 10 percent lower than budgeted for the third quarter and 20 percent lower than budgeted for the fourth quarter. The declining economy also impacted many customers' ability to pay on their accounts in a timely manner. As a result, management reported that the actual cash collections for the third and fourth quarter were 45 percent in the quarter of the sale and 50 percent in the quarter after the sale, with the remaining 5 percent uncollected. The outdated machine, which the company planned to replace in October, had to be replaced in March due to a broken part. Management determined that it was better to move forward with the purchase of the new machine rather than fix the broken part. Based on these changes, prepare a memo, following the Memo Template, to top management that accomplishes the following: Explain the differences between the cash budget amount and the actual amounts. Outline budget adjustments that need to be made (if any) to maintain the minimum required cash balance. Explain why the adjustments need to be made, or why no adjustments are needed. Recommend measures management should have taken to respond to these changes during the year to adjust their budget. Describe how management should use the above analysis to prepare the next year's cash budget View comments (1) Expert Answer Hang tight! We are finding a Chegg Expert to answer this question. Popular step-by-step textbook solutions in Accounting Cost Accounting 15th Edition Horngren, Charles T. Financial Accounting with Connect Plus 8th Edition Libby, Robert Fundamentals of Corporate Finance 11th Edition Ross, Stephen A. Show more