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1  Use the following to answer this and the next question


Use the following to answer this and the next question. Jake sells kites for $15 each. The variable cost of each kite is $11 and the fixed costs of operating the little business is $300 per month. If this was the only product that Jake sold, how many kites would he have to sell per month to break even (10 marks)? Show all your workings.

Case Number 02 Delta Company Products, a rapidly growing distributor

of home gardening equipment, is formulating its plans for 2014. Jewel

Cairn, the firm’s marketing director, has completed the following

sales forecast. Johansson, an accountant in the Planning and Budgeting

Department, is responsible for preparing the cash flow projection. He

has gathered the following information.

1. All sales are made on credit.

2. Delta Company excellent record in accounts receivable collection

is expected to continue, with 70 percent of billings collected in the

month after sale and the remaining 30 percent collected two months

after the sale. Variable Overhead Budget Annual Budget Per Shirt

November— Actual Indirect materials AFN 450,000 AFN 0.45 AFN 36,000

Indirect labor 300,000 0.30 33,700 Equipment repair 200,000 0.20

16,400 Equipment power 50,000 0.05 12,300 Total AFN 1,000,000 AFN 1.00

AFN 98,400 Month Sales Month Sales January $ 900,000 July $1,500,000

February $1,000,000 August $1,500,000 March $ 900,000 September

$1,600,000 April $1,150,000 October $1,600,000 May $1,250,000 November

$1,500,000 June $1,400,000 December $1,700,000

3. Cost of goods sold, Delta Company largest expense, is estimated to

equal 45 percent of sales dollars. Seventy percent of inventory is

purchased one month prior to sale and 30 percent during the month of

sale. For example, in April, 30 per-cent of April cost of goods sold

is purchased and 70 percent of May cost of goods sold is purchased.

4. All purchases are made on account. Historically, 80 percent of

accounts payable have been paid during the month of purchase, and the

remaining 20 percent in the month following purchase.

5. Hourly wages and fringe benefits, estimated at 30 percent of the

current month’s sales, are paid in the month incurred.

6. General and administrative expenses are projected to be $1,550,000

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 $ 324,000 Advertising 372,000

Property taxes 136,000 Insurance 192,000 Utilities 180,000

Depreciation 346,000 Total $1,550,000 Operating income for the first

quarter of 2014 is projected to be $320,000. Delta Company is subject

to a 40 percent tax rate. The company pays 100 percent of its

estimated taxes in the month following the end of each quarter. Delta

Company 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 6 percent 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, 2014 is $80,000.


1. Prepare the cash receipts budget for the second quarter of 2014.

2. Prepare the purchases budget for the second quarter of 2014.

3. Prepare the cash payments budget for the second quarter of 2014.

4. Prepare the cash budget for the second quarter of 2014.

Option 1

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