Sunland Instruments, a rapidly expanding electronic parts distributor, is in the process of formulating plans for next year. Bill Stockton, the firm's director of marketing, has completed his sales forecast and is confident that sales estimates will be met or exceeded. The following sales figures show the growth expected and will provide the planning basis for other corporate departments. Month January February March April May June Forecasted Sales Month $1,900,000 July 2,100,000 August 1,900,000 September 2,300,000 October 2,600,000 November 2,900,000 December Forecasted Sales $3,100,000 3,100,000 3,300,000 3,300,000 3,100,000 3,500,000 Samantha Carlson, assistant controller, has been given the responsibility for formulating the cash flow projection, a critical element during a period of rapid expansion. The following information will be used in preparing the cash analysis. 1. 2. 3. 4. Sunland has experienced an excellent record in accounts receivable collection and expects this trend to continue. 60% of billings are collected in the month after the sale and 40% in the second month after the sale. Uncollectibles are nominal and can be ignored in the analysis. The purchase of electronic parts is Sunland's largest expenditure: the cost of these items is equal to 50% of sales. 60% of the parts are received by Sunland one month prior to sale and 40% are received during the month of sale. Historically, 80% of accounts payable have been cleared by Sunland one month after receipt of purchased parts and the remaining 20% have been cleared two months after receipt. Hourly wages, including fringe benefits, are a function of sales volume and are equal to 20% of the current month's sales. These wages are paid in the month incurred. General and administrative expenses are projected to be $2,748,000 for the next period. These include $456,000 in salaries, $684,000 in product promotions, $204,000 in property taxes, $396,000 for insurance, $336,000 in utilities, and $672,000 in depreciation. All expenses except property taxes are incurred uniformly throughout the year, and property taxes are paid in four equal installments in the last month of each calendar quarter. Sunland makes income tax payments in the first month of each quarter based on the income for the prior quarter. Sunland is subject to an effective income tax rate of 40%. Sunland's pretax income for the first quarter of the next year is projected to be $614,000. Sunland has a corporate policy of maintaining an end-of-month cash balance of $100,000. Cash is invested or borrowed monthly, as necessary to maintain this balance. 5. 6. 7. Prepare a table with the cash receipts and disbursements budget for Sunland Instruments by month for the second quarter. Be sure that all receipts, disbursements, and borrowing/investing are presented on a monthly basis. Ignore the interest expense and/or income associated with borrowing/investing. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Receipts and Disbursements Budget April May June Receipts Disbursements Total Disbursements Excess Receipts (Disbursements) Wages and fringe benefits General and administration Property taxes Electronic parts Income taxes Short-Term Financing Budget April May June Although this industry has experienced rapid growth over the last few years, competition from outside the country has also increased markedly and is beginning to affect prices. In fact, an offshore electronics manufacturer recently contacted Sunland's largest customer and has offered the same electronic product at a lower price. The customer would prefer to stay with Sunland, but only if Sunland will cut prices by 20%. Assume that half of all sales are to this customer. Perform sensitivity analysis using the cash budget as a flexible budget to determine whether Sunland would be better off to reduce prices or to drop the customer. (Hint: Adjust costs that vary with sales to reflect the new level and keep fixed costs at the static budget level.) (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) OPTION #1: MAKE NO CHANGE; LOSE 50% OF SALES, PARTS COSTS, AND LABOUR COSTS Cash Receipts and Disbursements Budget April May June Receipts Disbursements Total Disbursements Excess Receipts (Disbursements) Short-Term Financing Budget April May June $ A OPTION #2: REDUCE PRICES BY 20%; NO CHANGE IN VOLUME OR IN LABOUR COSTS Cash Receipts and Disbursements Budget April May June Receipts $ Disbursements Total Disbursements Excess Receipts (Disbursements) $ Short-Term Financing Budget April May June Sunland Instruments, a rapidly expanding electronic parts distributor, is in the process of formulating plans for next year. Bill Stockton, the firm's director of marketing, has completed his sales forecast and is confident that sales estimates will be met or exceeded. The following sales figures show the growth expected and will provide the planning basis for other corporate departments. Month January February March April May June Forecasted Sales Month $1,900,000 July 2,100,000 August 1,900,000 September 2,300,000 October 2,600,000 November 2,900,000 December Forecasted Sales $3,100,000 3,100,000 3,300,000 3,300,000 3,100,000 3,500,000 Samantha Carlson, assistant controller, has been given the responsibility for formulating the cash flow projection, a critical element during a period of rapid expansion. The following information will be used in preparing the cash analysis. 1. 2. 3. 4. Sunland has experienced an excellent record in accounts receivable collection and expects this trend to continue. 60% of billings are collected in the month after the sale and 40% in the second month after the sale. Uncollectibles are nominal and can be ignored in the analysis. The purchase of electronic parts is Sunland's largest expenditure: the cost of these items is equal to 50% of sales. 60% of the parts are received by Sunland one month prior to sale and 40% are received during the month of sale. Historically, 80% of accounts payable have been cleared by Sunland one month after receipt of purchased parts and the remaining 20% have been cleared two months after receipt. Hourly wages, including fringe benefits, are a function of sales volume and are equal to 20% of the current month's sales. These wages are paid in the month incurred. General and administrative expenses are projected to be $2,748,000 for the next period. These include $456,000 in salaries, $684,000 in product promotions, $204,000 in property taxes, $396,000 for insurance, $336,000 in utilities, and $672,000 in depreciation. All expenses except property taxes are incurred uniformly throughout the year, and property taxes are paid in four equal installments in the last month of each calendar quarter. Sunland makes income tax payments in the first month of each quarter based on the income for the prior quarter. Sunland is subject to an effective income tax rate of 40%. Sunland's pretax income for the first quarter of the next year is projected to be $614,000. Sunland has a corporate policy of maintaining an end-of-month cash balance of $100,000. Cash is invested or borrowed monthly, as necessary to maintain this balance. 5. 6. 7. Prepare a table with the cash receipts and disbursements budget for Sunland Instruments by month for the second quarter. Be sure that all receipts, disbursements, and borrowing/investing are presented on a monthly basis. Ignore the interest expense and/or income associated with borrowing/investing. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Receipts and Disbursements Budget April May June Receipts Disbursements Total Disbursements Excess Receipts (Disbursements) Wages and fringe benefits General and administration Property taxes Electronic parts Income taxes Short-Term Financing Budget April May June Although this industry has experienced rapid growth over the last few years, competition from outside the country has also increased markedly and is beginning to affect prices. In fact, an offshore electronics manufacturer recently contacted Sunland's largest customer and has offered the same electronic product at a lower price. The customer would prefer to stay with Sunland, but only if Sunland will cut prices by 20%. Assume that half of all sales are to this customer. Perform sensitivity analysis using the cash budget as a flexible budget to determine whether Sunland would be better off to reduce prices or to drop the customer. (Hint: Adjust costs that vary with sales to reflect the new level and keep fixed costs at the static budget level.) (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) OPTION #1: MAKE NO CHANGE; LOSE 50% OF SALES, PARTS COSTS, AND LABOUR COSTS Cash Receipts and Disbursements Budget April May June Receipts Disbursements Total Disbursements Excess Receipts (Disbursements) Short-Term Financing Budget April May June $ A OPTION #2: REDUCE PRICES BY 20%; NO CHANGE IN VOLUME OR IN LABOUR COSTS Cash Receipts and Disbursements Budget April May June Receipts $ Disbursements Total Disbursements Excess Receipts (Disbursements) $ Short-Term Financing Budget April May June