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Financial Planning and Budget Analysis

A financial study on budgeting techniques and financial planning strategies.

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    Financial Planning and Budget Analysis Chapter 6 and 7 Problems Please complete the following 8 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button. Chapter 6 Exercise 2 2. Schedule of cash collections Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on May 1 of the current year. Expected sales during the first three months of activity are: May, $60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining 70% are on account. Credit sales have the following collection pattern: Collected in the month of sale 60% Collected in the month following sale 35 Uncollectible 5 SUGARLAND COMPANY SCHEDULE OF CASH COLLECTIONS FOR THE THREE MONTHS ENDED JULY 31, 20XX May June July Total May sales Cash $18,000 $ 18,000 Credit June sales Cash 25,200 $14,700 24,000 39,900 24,000 Credit July sales Cash 33,600 $19,600 25,500 53,200 25,500 Credit 35,700 35,700 Total budgeted cash collections $43,200 $72,300 $80,800 $196,300

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    Computations May sales: $60,000 X 30% = $18,000; ($60,000 X 70%) X 60% = $25,200; ($60,000 X 70%) X 35% = $14,700 June sales: $80,000 X 30% = $24,000; ($80,000 X 70%) X 60% = $33,600; ($80,000 X 70%) X 35% = $19,600 July sales: $85,000 X 30% = $25,500; ($85,000 X 70%) X 60% = $35,700 b. The remaining collectible accounts receivable are $20,825 (($85,000 X 70%) X 35%). Chapter 6 Exercise 4 4. Production and cash - outlay computations RPR, Inc., anticipates that 120,000 units of product K will be sold during May. Each unit of product K requires four units of raw material A. Actual inventories as of May 1 and budgeted inventories as of May 31 follow. 1 - May 31 - May Product K (Units) 55,000 60,000 Rate Materials A (Units) 40,000 37,000 Each unit of raw material A costs $8; RPR pays for all purchases in the month of acquisition. Invoices that account for 80% of the cost of materials acquired will be paid within 10 days of receipt, entitling the company to a 2% cash discount. a. Determine the number of units of product K to be manufactured in May. Number of units of Product K to be manufactured = 120000 + 60000 – 55000 = 125,000 b. Compute the May cash outlay for purchases of raw material A. Cash outlay for purchases of raw material A : = (125000 x 4) + 37000 – 40000 = 500000 + 37000 – 40000 = 497,000 = ( 497000 x $8 x .80 x .98) + (497000 x $8 x .20) = 3,117,184 + 795,200 Total cash outlay for purchases = $ 3,912,384

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    Chapter 6 Exercise 5 5. Abbreviated cash budget; financing emphasis An abbreviated cash budget for Big Chuck Enterprises follows. Big Chuck wishes to maintain a $10,000 minimum cash balance at all times. Additional financing is available (and retired) in $1,000 multiples at a 12% interest rate. Assume that borrowings take place at the beginning of the month; retirements, in contrast, occur at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid. A. Find the unknowns in Big Chuck's abbreviated cash budget. July ending cash balance = - 4000 + 14000 = 10000 August interest payment = 4000 x .12 x 1/12= 40 August ending cash balance = 15000 – 4000 – 40 = 10960 September interest payment = 7000 x .12 =720 September ending cash balance = 17960 - 7000 – 70 = 10890 B. Determine the outstanding loan balance as of September 30, after any repayments have been made. Outstanding loan balance, September 30 = 14000 – 4000 – 7000 = $ 3,000 July August September Beginning cash balance $10,000 $ ? $ ? Add: Cash receipts 50,000 63,000 71,000 Deduct: Cash payments - 64,000 - 58,000 - 64,000 Cash excess (deficiency) before financing ($4,000) $15,000 $17,960 Financing Borrowing to maintain minimum balance 14,000 0 - 0 Principal repayment 0 - 4,000 - 7,000 Interest payment 0 - 40 - 70 Ending cash balance $10,000 $10,960 $10,890

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