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Homework answers / question archive / Estimate cash flows in each of the months, and make a balance sheet and an income statement QUESTIONS TO BE ANSWERED (based on following info) 1
Estimate cash flows in each of the months, and make a balance sheet and an income statement
QUESTIONS TO BE ANSWERED (based on following info)
1.) Estimate cash flows in each of the months
2.) Does the Company need to borrow money in any of the months
3.) Make a balance sheet as of the end of March and an income statement for the first three months. Assume that the company borrows cash at an interest rate of 1% per month to make up for any shortage of cash.
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Balance sheet January 1, 2001
Assets Liabilities & Equities
Cash $ 10,000.00 AP $ 3,000.00
AR $ 20,000.00 Long-Term Debt $ 50,000.00
Inventory $ 30,000.00
Total Current Assets $ 60,000.00 Total Liabilities $ 53,000.00
Fixed Assets $ 200,000.00 Common Stock at Par $ 10,000.00
Accumulated Depreciation $ (90,000.00) Additional Paid in $ 20,000.00
Retained Earnings $ 87,000.00
Total Assets $ 170,000.00 Total Assets $ 170,000.00
The company expects to collect the beginning balance of accounts receivable in January. In general 30% of the companies sales are on a cash basis. Of the credit sales 40% are paid in the following month, and 60% are paid in the second month after the sale.
The accounts payable at the beginning of the year must be paid in January. All materials are purchased on credit and paid for in the following month.
The long term debt has an annual interest rate of 12%. Interest payments of 1% of the principal are made each month. The long term debt is not due for another five years.
Euguene brewing company makes two different types of beer, an ale and a porter. The ale is a lighter beer that requires fewer ingredients than does the darker and heavier porter. The input requirements for a case of beer for each type of beer follow:
for making ale
Material Qty. per case Cost
Hops 5lb $ 0.30 /lb
Yeast 1oz $ 0.10 /oz
Sugar 0.5lb $ 0.40 /lb
Bottles 24 $ 0.05 /bottle
for making porter
Material Qty. per case Cost
Hops 10lb $ 0.30 /lb
Yeast 1oz $ 0.10 /oz
Sugar .8lb $ 0.40 /lb
Bottles 24 $ 0.05 /bottle
Labor 0.2 $ 10.00
The labor to make a case of beer is the same for each type of beer, 0.20 hours at $10/ hour. Labor is paid in the month earned.
Monthly over head expenses are paid in the month incurred and expected to be as follows:
OVERHEAD
Cost
Electricity $ 2,000.00
Indirect Labor $20,000.00
Rent $ 5,000.00
Depreciation $ 2,000.00
Ale sells for $10 per case and porter sells for $12 per case. Estimated sales (in cases) for Eugene Brewing are as follows:
Ale (in cases)
January 3000
February 3000
March 4000
April 2000
Porter (in cases)
January 4000
February 5000
March 3000
April 2000
The beginning inventory includes 2,000 cases of ale and 3,000 cases of porter. The company prefers to have inventory at the end o each month equal to the expected sales in the next month. Euguene Brewing uses a FIFO method of costing inventory.
The company must buy a new bottling machine for $20,000 at the end of January
January February March April
Cash inflows:
Accounts Receivable, Beg. 20,000
Cash sales (30%) 23,400 27,000 22,800
Credit sales (40% x 70%) 21,840 25,200 21,280
Credit sales (60% x 70%) 9,828 11,340
Total cash inflows 43,400 48,840 57,828 32,620
Accounts Receivable balance
Cash outflows: Total
Accounts Payable, Beg. 3,000
Interest Expense (1% x 50,000) 500 500 500 1,500
Purchase of new bottling machine 20,000 - - -
Direct material - 39,720 25,860 15,240 Accounts Payable balance
Direct labor 20,000 14,000 8,000 42,000
Overhead expenses 27,000 27,000 27,000
Total cash outflows 70,500 81,220 61,360 15,240
Shortage of cash 27,100 32,380 3,532 63,012
Interest expense (1%) 813 648 35 1,496
For cash inflow, you need to calculate total sales for each month
Ale (in cases) Price/case
January 3,000 10 30,000
February 3,000 10 30,000
March 4,000 10 40,000
April 2,000 10 20,000
Porter (in cases) Price/case
January 4,000 12 48,000
February 5,000 12 60,000
March 3,000 12 36,000
April 2,000 12 24,000
Then, you need to find total sales so that you can calculate how much cash will be receive in the month of sales.
Cash sales Credit sales first month Credit sales second month
January 78,000 23,400 21,840 9,828
February 90,000 27,000 25,200 11,340
March 76,000 22,800 21,280 9,576
April 44,000 13,200 12,320 5,544
Total sales from Jan. - March 244,000
You need to find the amount of cases to be produced. The beginning inventory includes 2,000 cases of ale and 3,000 cases of porter. The
company prefers to have inventory at the end of each month equal to the expected sales in the next month. Therefore, the ending inventory
should be equal to the expected sales, and we will be able to calculate how many cases should they produce each month.
Note: Euguene Brewing uses a FIFO method of costing inventory.
Amount of cases to be produced
Ale Sales Beg. Inventory Amt. to be produced Ending Inventory
January 3,000 2,000 4,000 3,000
February 3,000 3,000 4,000 4,000
March 4,000 4,000 2,000 2,000
April 2,000 2,000
Porter (in cases)
January 4,000 3,000 6,000 5,000
February 5,000 5,000 3,000 3,000
March 3,000 3,000 2,000 2,000
April 2,000 2,000
Then, we need to find the expenses required to be paid for producing ale and porter.
for making ale
Material Qty. per case Cost
Hops 5lb $ 0.30 /lb
Yeast 1oz $ 0.10 /oz
Sugar 0.5lb $ 0.40 /lb
Bottles 24 $ 0.05 /bottle
Total direct material per case = ($0.30 x 5lb) + ($0.10 x 1 oz) + ($0.40 x 0.5lb) + ($0.05 x 24)
= $3 per case
Amt. to be produced Total direct material expenses
4,000 12,000
4,000 12,000
2,000 6,000
for making porter
Material Qty. per case Cost
Hops 10lb $ 0.30 /lb
Yeast 1oz $ 0.10 /oz
Sugar .8lb $ 0.40 /lb
Bottles 24 $ 0.05 /bottle
Total direct material per case = ($0.30 x 10lb) + ($0.10 x 1 oz) + ($0.40 x 0.8lb) + ($0.05 x 24)
= $4.62 per case
Amt. to be produced Total direct material expenses
6,000 27,720
3,000 13,860
2,000 9,240
For direct labor, we can calculate as follows: -
Labor 0.2 $ 10.00 $2 per case
for making ale
Amt. to be produced Total direct labor expense
4,000 8,000
4,000 8,000
2,000 4,000
for making porter
Amt. to be produced Total direct labor expense
6,000 12,000
3,000 6,000
2,000 4,000
OVERHEAD
Cost
Electricity $ 2,000.00
Indirect Labor $20,000.00
Rent $ 5,000.00
Depreciation $ 2,000.00
Total overhead expenses $29,000.00
However, since depreciation is a noncash expense, the amount of cash outflow for overhead is $27,000 per month.
Euguene Brewing Company
Balance Sheet
March 31, 20XX
Assets Liabilites & Equities
Cash 67,576 AP 15,240
AR 32,620 Short-Term Debt 63,012
Inventory 52,240 Long-Term Debt 50,000
Total Current Assets 152,436 Total Liabilities 128,252
Fixed Assets 220,000 Common Stock at Par 10,000
Accumulated Deprecation -96,000 Additional Paid in 20,000
Retained Earnings 118,184
Total Assets 276,436 Total Liabilities and Equity 276,436
Inventory = (2,000 cases x ($3 + $2)) + (2,000 cases x ($4.62 + $2)) + 29,000 = 52,240
Fixed assets = 200,000 + 20,000 = 220,000
Accumulated Depreciation = 90,000 + (2,000 x 3) = 96,000
Retained earnings = 87,000 + 31,184 = 118,184
Short-Term Debt = 27,100 + 32,380 + 3,532 = 63,012
Euguene Brewing Company
Income Statement
For the Month Ended March 31, 20XX
Sales 244,000
Less: Direct Materials 80,820
Direct Labor 42,000
Overhead expenses (29,000 x 3) 87,000
Interest expense (1,500 + 1,496) 2,996
Total Expenses 212,816
Net Income 31,184
PFA
