Question

Swifty Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast.

Month		Sales		Month		Sales
January		$904,900		July		$1,501,400
February		$1,002,000		August		$1,501,400
March		$904,900		September		$1,606,000
April		$1,154,600		October		$1,606,000
May		$1,260,000		November		$1,501,400
June		$1,406,000		December		$1,704,000

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

●	All sales are made on credit.
●	Swifty’s excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale.
●	Cost of goods sold, Swifty’s largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased.
●	All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase.
●	Hourly wages and fringe benefits, estimated at 30% of the current month’s sales, are paid in the month incurred.
●	General and administrative expenses are projected to be $1,575,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits		$	323,700
Advertising			378,800
Property taxes			142,400
Insurance			195,600
Utilities			184,800
Depreciation			349,700
Total		$	1,575,000

●

Operating income for the first quarter of the coming year is projected to be $329,100. Swifty is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter.

●

Swifty maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $51,300 Prepare the cash payments budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.) Cash Payments Budget April May June March purchases $enter a dollar amountenter a dollar amount $enter a dollar amountenter a dollar amount $enter a dollar amountenter a dollar amount April purchases enter a dollar amountenter a dollar amount enter a dollar amountenter a dollar amount enter a dollar amountenter a dollar amount May purchases enter a dollar amountenter a dollar amount enter a dollar amountenter a dollar amount enter a dollar amountenter a dollar amount June purchases enter a dollar amountenter a dollar amount enter a dollar amountenter a dollar amount enter a dollar amountenter a dollar amount $Enter a total amountEnter a total amount $Enter a total amountEnter a total amount $Enter a total amountEnter a total amount Accounts Payable balance at the end of second quarter of 2015 $Enter a dollar amount of the Accounts Payable balance at the end of second quarter of 2015Enter a dollar amount of the Accounts Payable balance at the end of second quarter of 2015

Answer 1

Cash payments budget for Purchases						Calculation
	April	May	June	Quarter		April	May	June
Mar Purchases	107,969			107,969		=((904,900*40%*30%)+(1,154,600*40%*70%))*25%
Apr Purchases	368,514	122,838		491,352		=491,352*75%	=491,352*25%
May Purchases		408,660	136,220	544,880			=544,880*75%	=544,880*25%
June Purchases			441,834	441,834				=589,112*75%
Total disbursements for purchases	476,483	531,498	578,054	1,586,035
Accounts Payable balance at end of 2nd quarter of 2015				147,278		=589,112*25%

Note: First prepare below Inventory Purchase Budget for Purchases figures, then make above Cash payments budget !

Inventory Purchase budget						Calculation
	April	May	June	Quarter		April	May	June
April COGS	138,552			138,552		=1,154,600*40%*30%
May COGS	352,800	151,200		504,000		=1,260,000*40%*70%	=1,260,000*40%*30%
June COGS		393,680	168,720	562,400			=1,406,000*40%*70%	=1,406,000*40%*30%
July COGS			420,392	420,392				=1,501,400*40%*70%
Required Purchases	491,352	544,880	589,112	1,625,344

Cash receipts						Calculation
	April	May	June	Quarter		April	May	June
Feb sales	400,800			400,800		=1,002,000*40%
Mar sales	542,940	361,960		904,900		=904,900*60%	=904,900*40%
Apr sales		692,760	461,840	1,154,600			=1,154,600*60%	=1,154,600*40%
May sales			756,000	756,000				=1,260,000*60%
Total collections from sales	943,740	1,054,720	1,217,840	3,216,300
Accounts Receivable balance at end of 2nd quarter of 2015				1,910,000		=(1,260,000*40%)+1,406,000

Cash budget
	April	May	June	Quarter		April	May	June
Beginning Cash balance	51,300	50,295	50,196	51,300
Add: Collections from sales	943,740	1,054,720	1,217,840	3,216,300
Total cash available to spend	995,040	1,105,015	1,268,036	3,267,600
Less: Cash payments				-
Inventory purchases	476,483	531,498	578,054	1,586,035
Wages and fringe benefits	346,380	378,000	421,800	1,146,180		=1,154,600*30%	=1,260,000*30%	=1,406,000*30%
Salaries and fringe benefits	26,975	26,975	26,975	80,925		=323,700/12	=323,700/12	=323,700/12
Advertising	31,567	31,567	31,567	94,700		=378,800/12	=378,800/12	=378,800/12
Property taxes	-	-	35,600	35,600				=142,400/4
Insurance	16,300	16,300	16,300	48,900		=195,600/12	=195,600/12	=195,600/12
Utilities	15,400	15,400	15,400	46,200		=184,800/12	=184,800/12	=184,800/12
Income taxes	131,640	-	-	131,640		=329,100*40%
Total cash payments	1,044,745	999,740	1,125,696	3,170,180
Cash Excess (deficiency)	(49,705)	105,276	142,340	97,420
Minimum cash balance	50,000	50,000	50,000	50,000
Cash Excess (needed)	(99,705)	55,276	92,340	47,420		-41,247-50,000	=112,225-50,000	=141,903-50,000
Financing
Borrowings at beginning	100,000			100,000		Rounded off 99,705 to 100,000 for borrowings calculation
Repayments at end		(54,000)	(46,000)	(100,000)
Interest @ 12%		(1,080)	(1,380)	(2,460)			=54,000*12%*2/12	=46,000*12%*3/12
Total Financing	100,000	(55,080)	(47,380)	(2,460)
Ending Cash balance	50,295	50,196	94,960	94,960		-49,705+100,000	=105,276-55,080	=142,340-47,380
						Cash Excess (deficiency) + Total Financing