Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month

Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month

Accounting

Terrel Manufacturing expects stable sales through the summer months of June, July, and August of $500,000 per month. The firm will make purchases of $350,000 per month during these months. Wages and salaries are estimated at $60,000 per month plus 7 percent of sales. The firm must make a principal and interest payment on an outstanding loan in June of $100,000. The firm plans a purchase of a fixed asset costing $75,000 in July. The second quarter tax payment of $20,000 is also due in June. All sales are for cash. Construct a cash budget for June, July, and August, assuming the firm has a beginning cash balance of $100,000 in June. (b) The sales projections may not be accurate due to the lack of experience by a newly- hired sales manager. If the sales manager believes the most optimistic and pessimistic estimates of sales are $600,000 and $400,000, respectively, what are the monthly net cash flows and required financing or excess cash balances? Make vour recommendations.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Cash Budget of Terrel Manufacturing      
For the months of June, July and August      
    ( Amount in $)  
Particulars June July August
Cash balance at the beginning of the month 100000 135000 250000
Cash Inflows      
Cash Sales 500000 500000 500000
Total Cash Inflows 600000 635000 750000
Cash Outflows      
Purchases 350000 350000 350000
Wages & Salaries 95000 95000 95000
Principal and Interest Payment of Loan 100000 0 0
Purchase of Fixed Asset 0 75000 0
Tax Payment 20000 0 0
Total Cash Outflows 565000 520000 445000
Cash Surplus / (Deficit) 35000 115000 305000
Cash Balance at the end of month 135000 250000 555000
       
       
       
       
Cash Budget of Terrel Manufacturing (In Most Optimistic Case)  
For the months of June, July and August      
       
    ( Amount in $)  
Particulars June July August
Cash balance at the beginning of the month 100000 158000 319000
Cash Inflows      
Cash Sales 600000 600000 600000
Total Cash Inflows 700000 758000 919000
Cash Outflows      
Purchases 420000 420000 420000
Wages & Salaries 102000 102000 102000
Principal and Interest Payment of Loan 100000 0 0
Purchase of Fixed Asset 0 75000 0
Tax Payment 20000 0 0
Total Cash Outflows 642000 597000 522000
Cash Surplus / (Deficit) 58000 161000 397000
Cash Balance at the end of month 158000 319000 716000
       
       
       
Cash Budget of Terrel Manufacturing (In Most Pessimistic Case)  
For the months of June, July and August      
       
    ( Amount in $)  
Particulars June July August
Cash balance at the beginning of the month 100000 112000 181000
Cash Inflows      
Cash Sales 400000 400000 400000
Total Cash Inflows 500000 512000 581000
Cash Outflows      
Purchases 280000 280000 280000
Wages & Salaries 88000 88000 88000
Principal and Interest Payment of Loan 100000 0 0
Purchase of Fixed Asset 0 75000 0
Tax Payment 20000 0 0
Total Cash Outflows 488000 443000 368000
Cash Surplus / (Deficit) 12000 69000 213000
Cash Balance at the end of month 112000 181000 394000

Notes:

1.) Purchases are calculated on the basis of sales.

In optimistic case - where sales is taken as $ 600000

Purchases = $ 350000 * $ 600000 / $ 500000

= $ 420000

In pessimistic case - where sales is taken as $ 400000

Purchases = $ 350000 * $ 400000 / $ 500000

= $ 280000

2.) Wages and salaries are $ 60000 plus 7% of sales per month

In normal case - where sales is $ 500000 per month

Wages & salaries = $ 60000 + ( $ 500000 * 7%)

= $ 60000 + $ 35000

= $ 95000

In Optimistic case - where sales is $ 600000 per month

Wages & salaries = $ 60000 + ( $ 600000 * 7%)

= $ 60000 + $ 42000

= $ 102000

In Pessimistic case - where sales is $ 400000 per month

Wages & salaries = $ 60000 + ( $ 400000 * 7%)

= $ 60000 + $ 28000

= $ 88000

Related Questions