ASSIGNMENT MATERIAL 221

The beginning cash balance for July 1, 2012, is $10,000. On October 1, 2011, Slopes had a cash crunch and
borrowed $30,000 on a 6% one-year note with interest payable monthly. The note is due October 1, 2012.
Using the information provided, you will need to determine whether Slopes will be in a position to pay off this
short-term debt on October 1, 2012.
1. Prepare a cash budget for the months of July through September 2012. Show supporting schedules for Required
the calculation of receivables and payables.
2. Will Slopes be in a position to pay off the $30,000 one-year note that is due on October 1, 2012? If not,
what actions would you recommend to Slopes management?
3. Suppose Slopes is interested in maintaining a minimum cash balance of $10,000. Will the company be
able to maintain such a balance during all three months analyzed? If not, suggest a suitable cash man-
agement strategy.
6-37 Cash budgeting. On December 1, 2011, the Itami Wholesale Co. is attempting to project cash
receipts and disbursements through January 31, 2012. On this latter date, a note will be payable in the
amount of $100,000. This amount was borrowed in September to carry the company through the seasonal
peak in November and December.
Selected general ledger balances on December 1 are as follows:

Cash $ 88,000
Inventory 65,200
Accounts payable 136,000

Sales terms call for a 3% discount if payment is made within the first 10 days of the month after sale, with the
balance due by the end of the month after sale. Experience has shown that 50% of the billings will be col-
lected within the discount period, 30% by the end of the month after purchase, and 14% in the following
month. The remaining 6% will be uncollectible. There are no cash sales.
The average selling price of the companys products is $100 per unit. Actual and projected sales are
as follows:

October actual $ 280,000

November actual 320,000
December estimated 330,000
January estimated 250,000
February estimated 240,000
Total estimated for year ending June 30, 2012 $2,400,000

All purchases are payable within 15 days. Approximately 60% of the purchases in a month are paid that
month, and the rest the following month. The average unit purchase cost is $80. Target ending inventories
are 500 units plus 10% of the next months unit sales.
Total budgeted marketing, distribution, and customer-service costs for the year are $600,000. Of this
amount, $120,000 are considered fixed (and include depreciation of $30,000). The remainder varies with
sales. Both fixed and variable marketing, distribution, and customer-service costs are paid as incurred.
Prepare a cash budget for December 2011 and January 2012. Supply supporting schedules for collections of Required
receivables; payments for merchandise; and marketing, distribution, and customer-service costs.
6-38 Comprehensive problem; ABC manufacturing, two products. Follete Inc. operates at capacity and
makes plastic combs and hairbrushes. Although the combs and brushes are a matching set, they are sold
individually and so the sales mix is not 1:1. Follette Inc. is planning its annual budget for fiscal year 2011.
Information for 2011 follows:

Input Prices
Direct materials
Plastic $ 0.20 per ounce
Bristles $ 0.50 per bunch
Direct manufacturing labor $12 per direct manufacturing labor-hour
6-37 (4050 min.) Cash budgeting.

Itami Wholesale Co.

Statement of Budgeted Cash Receipts and Disbursements
For the Months of December 2011 and January 2012

December 2011 January 2012

Cash balance, beginning $ 88,000 $ 18,470
Add receipts:
Collections of receivables (Schedule 1) 295,250 265,050
(a) Total cash available for needs 383,250 283,520
Deduct disbursements:
For merchandise purchases (Schedule 2) $291,280 $223,040
For variable costs (Schedule 3) 66,000 50,000
For fixed costs (Schedule 3) 7,500 7,500
(b) Total disbursements 364,780 280,540
Cash balance, end of month (a b) $ 18,470 $ 2,980

Under the current projections, the cash balance as of January 31, 2012, is $2,980, which is not
sufficient to enable repayment of the $100,000 note.

Schedule 1: Collections of Receivables

Collections in Oct. Sales Nov. Sales Dec. Sales Jan. Sales Total

December $39,200a $96,000b $160,050c ---- $295,250

January $44,800d $ 99,000e $121,250f $265,050

a b
0.14 $280,000 0.30 $320,000 c 0.50 $330,000 .97
d e
0.14 $320,000 0.30 $330,000 f 0.50 $250,000 .97

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2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren
Schedule 2: Payments for Merchandise
December January
Target ending inventory (in units) 750a 740c
Add units sold (sales $100) 3,300 2,500
Total requirements 4,050 3,240
b
Deduct beginning inventory (in units) 815 750
Purchases (in units) 3,235 2,490
Purchases in dollars (units $80) $258,800 $199,200

December January
Cash disbursements:
For December: accounts payable; $136,000
60% of current months purchases $155,280 $119,520
For January: 40% of Decembers purchases _______ 103,520
$291,280 $223,040
a
500 units + 0.10 ($250,000 $100)
b
$65,200 $80
c
500 units + 0.10($240,000 $100)

Schedule 3: Marketing, Distribution, and Customer-Service Costs

Total annual fixed costs, $120,000, minus $30,000 depreciation $90,000

Monthly fixed cost requiring cash outlay $ 7,500
$600,000 $120,000
Variable cost ratio to sales = = 0.2
$2,400,000
December variable costs: 0.2 $330,000 sales $66,000
January variable costs: 0.2 $250,000 sales $50,000

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2012 Pearson Education, Inc. Publishing as Prentice Hall. SM Cost Accounting 14/e by Horngren