Question

Cash flow analysis (Appendix11.1) (CMA, adapted) 11.38 TabComp Ltd is a retail distributor for MZB-33 computer hardware, and related software and support services. TabComp prepares annual sales forecasts of which the first six months for 2018 are presented here. Cash sales account for 25% of TabComp's total sales, 30% of the total sales are paid by bank credit card and the remaining 45% are on open account (TabComp's own charge accounts). The cash sales and cash from bank credit card sales are received in the month of the sale. Bank credit card sales are subject to a 4% discount deducted at the time of the daily deposit. The cash receipts for sales on open account are 70% in the month following the sale and 28% in the second month after the sale. The remaining accounts receivable are estimated to be uncollectable. TabComp's month-end inventory requirements for computer hardware units are 30% of the next month's sales. A one-month lead time is required for delivery from the manufacturer. Thus orders for computer hardware units are placed on the 25th of each month to ensure that they will be in the store by the first day of the month needed. The computer hardware units are purchased under terms of n/45 (payment in full within 45 days of invoice), measured from the time the units are delivered to TabComp. TabComp's purchase price for the computer units is 60% of the selling price. TabComp Ltd Sales forecast for first six months of 2018 Hardware sales Software sales and support Units Dollars $390 000 Total revenues January February March 130 $160 000 $550 000 120 110 360 000 330 000 270 000 300 000 375 000 $2 025 000 500 000 480 000 400 000 425 000 600 000 $2 955 000 140 000 150 000 130 000 125 000 225 000 $930 000 April May June 90 100 125 675 Total

Answer 1

Answer:-

1) The cash that TabCormp Inc. can expect to collect during April 2018 are as follows:

Particular	Amount
Cash sale	$100,000
Credit Card Sales	$115,200
Collection on account :
March Month collection	$151,200
February Month collection	$63,000
Total cash collection expect during April 2018	$429,400
(Please see Note - 1 for explanation)

Note 1 -

Here Total revenue= Total sales

It was given that Cash sale = 25% of Total sale

April month Total sales = Total revenue = $400,000

April cash sales= $400,000 x 25%

April cash sales = $100,000

.

Now we calculate Credit Card Sales

It given that Bank Credit Card Sales = 30 % of Total sale

Credit card sales = $400,000 x 30% = $120,000

Bank credit card sales are subject to a 4% discount deducted at the time of the daily deposit

Credit card sales after discount = $120,000 - 4%= $115,200

April credit card= $ 115,200.

Now we calculate collection on account for following month :

It given that cash receipts for sales on open account are 70 percent in the month following the sale, 28 percent in the
second month following the sale.And Tabcomp changes 45% on Open account.

Here we find Collection of April month then the following month is March month and Second following month is February.

Total March month sale = $480,000
March month collection =$480,000 x 45% x 70%

March month collection = 151,200

February Month Total sales = $ 500,000
February month collection =$500,000 x 45% x 28%

February Month collection = $63,000

2)a)The projected number of computer hardware units that TabComp Inc. will order on January 25, 2011, is calculated as follows.

Particulars	units
March sales	110
Add :- Ending Inventory (Note -2)	27
Total	137
Less :- Beginning Inventory	33
Projected Purchase in Units	104

Note 2 :-

It given that TabComp's month-end inventory for hardware units are 30 % of the next month's sales
Then Ending Inventory = 30% x 90 unit sales in April.

Ending Inventory = 27 units
We will subtract the Beginning inventory as it includes 30% next month sales.

Beginning inventory = 30% x 110 unit sales in March.

Beginning inventory = 33 units

2)b)The amount of the order that TabComp will place for these computer hardware units.

To find it first we find Selling price per unit.

Selling price per unit = Total sales of Computer hardware / Total No. Of units.

Total sales of Computer hardware = $ 2,025,000

Total No.of units = 675 units

Selling price per unit = $2,025,000 / 675 units

Selling Price = $3,000 per unit

Now we calculate Purchase price per unit. It was given that purchase price for the computer units is 60% of the selling price.

Purchase price = $3,000 selling price per unit x 60% = $ 1,800

Projected unit purchases = 104

Value of MZB-33 purchases = Purchase price × Projected unit purchases

Value of MZB-33 purchase = $1,800 × 104

Value of MZB -33 purchases = $187,200

3) Monthly cash budgets are prepared by TabComp to plan for their cash needs. A company needs to know when cash shortages will occur so that important arrangements can be made 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 is excess cash available for.