Question
Toys for You a manufacturing company has been growing quickly but has found that its financial situation is continually under pressure. Production has fluctuated to
Toys for You
a manufacturing company has been growing quickly but has found that its financial situation is continually under pressure. Production has fluctuated to meet demand in an attempt to provide first class service, resulting in larger inventory positions. Also, the collection of accounts has worsened to approximately 60 days which is well above the terms of 30 days. To address the financial concerns to bring the average collection period down to 35 days.
Estimated sales for the upcoming months are
July $1,957,500
August 2,070,000
September 2,205,000
October 2,362,500
November 2,475,000
December 2,565,000
Sales for May were 1,732,500 and will be approximately $1,845,000 for the current month of June.
It is projected that the current collection period of 60 days will be reduced to 50 days for July and August, 42 days for September and October, and will meet the target of 35 days in Nov and Dec. Purchases are forecast to be $585,000 a month beginning in July, until December. In May they were $675,000 and in June they ware expected to be $607,500. The purchases are paid in 40 days. Labour expense will be paid as incurred and will be $195,000 a month. Other expenses of manufacturing will also be paid as incurred and are expected to be $375,000 a month. Cost of goods sold has regularly been 70% of sales.
Amortization is $38,000 per month. Selling and administrative expense are expected to be 13% of sales. The tax rate is 42%.
There will be payments on notes of $675,000 in each of August and November. Interest of $270,000 and income taxes of $338,000 are both due in October, Dividends of $22,500 are payable in July and October.
Balance sheet
Assets
Current assets:
Cash $666
Accounts receivable 3,578
Inventory 8,231
Total current assets: $12,475
Capital assets:
Plant and equipment 11,273
Less: accumulated amortization 4,784 6,489
Total assets: $18,964
Liabilities and shareholders equilty
Current liabilities
Accounts payable $945
Notes payable 3,700
Accrued liabilities 2,596
Total current liabilities $7,241
Longterm debt $4,725
Common stock $4,500
Retained earnings 2,498
Total liabilities and shareholders equity $18,964
Using the information above, construct a cash budget for the 6-month period and identify any need for short-term financing.
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