Question

Vaughn 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 January February March April May June Sales $908,300 $1,005,800 $908,300 $1,153,500 $1,252,100 $1,409,900 Month July August September October November December Sales $1,504,200 $1,504,200 $1,606,500 $1,606,500 $1,504,200 $1,707,200 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. • Vaughn'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, Vaughn'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 $1,561,000 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 Advertising Property taxes Insurance Utilities Depreciation Total $ 321,600 373,600 141,700 190,500 180,800 352,800 $ 1,561,000 Operating income for the first quarter of the coming year is projected to be $323,700. Vaughn is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter. • Vaughn 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 $51,500.

Answer 1

Cash Receipts Budget Total cash April May June receipts 5 February sales 402320 402320 6 March sales 5449801363320 908300 7 April Sales 692100461400 1153500 8 May sales 751260 7 51260 9 Totals 947300 1055420 12126603215380 10 11 2) Accounts receivable balance at the end of second quarter 12 of 2015 19,08,940 13 14 Explanation:- 15 16 May 17 June 18 Total 19 5,00,840 14,08,100 19,08,940

23 April COGS 24 May COGS 25 June COGS 26 July COGS Totals Cash Receipts Budget Total April May June Purchases 138420 350588|| 150252 5008401 394772 169188 563960 421176 4211761 | 4890085450245903641624396 29 4) 30 Cash Payments Budget April May June March 32 Purchases 227075 April 33 Purchases 288375 34 May Purchases 9390751 313025 865125 35 June Purchases 36 Totals 1057425 1370450 10922001 1227450 37 38

Cash Receipts Budget May June April =1005800*40% =908300*60% 5 February sales 6 March sales 7 April Sales 8 May sales 9 Totals =908300-B6 =1153500*60% Total cash receipts =B5 =B6+C6 =C7+D7 =D8 =B9+C9+D9 =1153500-C7 =1252100*60% =D7+D8 =B5-B6 =C6+C7 10 11 2) 12 Accounts receivable balance at the end of second quarter of 2015 =C18 13 14 Explanation:- 15 16 May 17 June 18 Total 19 =1252100-751260 1408100 =C16+C17

Cash Receipts Budget April May June =1153500*40%*30% I=1252100*40%*70% 23 April COGS 24 May COGS 25 June COGS 26 July COGS 27 Totals =1252100*40%*30% =1409900*40%*70% Total Purchases =B23 =B24+C24 =C25+D25 =D26 =SUM(E23:E26) =1409900*40%*30% =1504200*40%*70% =D25+D26 =B23+B24 =C24+C25 29 4) 30 Cash Payments Budget May 31 April June 32 March Purchases =908300*25% =1153500*75% 33 April Purchases 34 May Purchases =1153500*25% =1252100*75% =1252100*25% 35 June Purchases 36 Totals =1409900*75% =D34+D35 =B32+B33 =C33+C34