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6-26 1.

(30 min.)

Cash flow analysis.

The cash that TabComp Inc. can expect to collect during April 2008 is calculated below: April cash receipts: $100,000 April cash sales ($400,000 .25) 115,200 April credit card sales ($400,000 .30 .96) Collections on account: 151,200 March ($480,000 .45 .70) 63,000 February ($500,000 .45 .28) January (uncollectablenot relevant) 0 Total collections $429,400

2. (a) The projected number of the MZB-33 computer hardware units that TabComp Inc. will order on January 25, 2008, is calculated as follows. MZB-33 Units 110 27 137 33 104

March sales Plus: Ending inventorya Total needed Less: Beginning inventoryb Projected purchases in units
a

0.30 90 unit sales in April 0.30 110 unit sales in March

(b) Selling price = $2,025,000 675 units, or for March, $330,000 110 units = $3,000 per unit $ 1,800 Purchase price per unit, 60% $3,000 Projected unit purchases x 104 $187,200 Total MZB-33 purchases, $1,800 104 3. Monthly cash budgets are prepared by companies such as TabComp Inc. in order to plan for their cash needs. This means identifying when both excess cash and cash shortages may occur. A company needs to know when cash shortages will occur so that prior arrangements can be made with lending institutions in order to have cash available for borrowing when the company needs it. At the same time, a company should be aware of when there will be excess cash available for investment or for repaying loans.

6-32 1.

(40 min.)

Cash budgeting for distributor.

The pro forma cash budget for Montrose for the second quarter of 2010 is presented below. Supporting calculations are presented on the next page. Montrose Inc. Cash Budget For the Second Quarter 2010 April $ 600,000 4,800,000 6,480,000 May $ 600,000 June $ 1,476,000

Beginning balance Collections1 February sales March sales April sales May sales Total receipts Total cash available Disbursements Accounts payable5 Hourly wages2 General & administrative3 Property taxes Income taxes4 Total disbursements Cash balance Cash borrowed Cash repaid Ending balance
160% 230%

4,320,000 8,280,000 12,600,000 13,200,000

11,280,000 11,880,000

5,520,000 9,000,000 14,520,000 15,996,000

4,986,000 4,140,000 1,080,000 1,536,000 11,742,000 138,000 462,000 $ 600,000

5,682,000 4,500,000 1,080,000

6,342,000 5,040,000 1,080,000 408,000 12,870,000 3,126,000

11,262,000 1,938,000 (462,000) $1,476,000

$ 3,126,000

of sales in first month; 40% of sales in second month of current month sales 3(Total less property taxes and amortization) 12 4 40% $3,840,000 5 See schedule on next page.

Supporting Calculations Accounts payableparts received:


Month February March March April April May May June Payment February March March April April May 40% of Revenues $4,800,000 4,320,000 4,320,000 5,520,000 5,520,000 6,000,000 6,000,000 6,720,000 Timing February .30 $1,440,000 .70 3,024,000 .30 .70 .30 .70 .30 .70 $4,464,000 .25 .75 .25 .75 .25 .75 March April May June

$1,296,000 3,864,000

$1,656,000 4,200,000 $5,856,000 $1,116,000 3,870,000 $1,800,000 4,704,000 $6,504,000

$5,160,000

$4,464,000 5,160,000 5,160,000 5,856,000 5,856,000 6,504,000

$1,290,000 4,392,000 $5,682,000

$4,986,000

$1,464,000 4,878,000 $6,342,000

2.

Cash budgeting is important for Montrose because as sales grow so will expenditures for input factors. Since these expenditures generally precede cash receipts, the company must plan for possible financing to cover the gap between payments and receipts. The cash budget shows the probable cash position at certain points in time, allowing the company to plan for borrowing, as Mon Montroseose must do in April. Cash budgeting also facilitates the control of excess cash. The company may be losing investment opportunities, if excess cash is left idle in a chequing account. The cash budget alerts management to periods when there will be excess cash available for investment, thus facilitating financial planning and cash control.

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