Project #157283 - managerial accounting case

Business Tutors

Subject Business
Due By (Pacific Time) 12/01/2016 12:00 pm

Case 3

Part 1 - Cash Budget 

1.              Discuss the purpose of the cash budget.

2.              If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?

3.              Give an example of how the capital expenditures budget affects other operating budgets.

The controller of the Box Company instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

                                                                        May                June              July

Sales                                                               86000              90000              95000

Manufacturing Costs                                       34000              39000              44000

Selling and Admin Expenses                           15000              16000              22000

Capital Expenditures                                                                                       80000


The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $3,500 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.


Current assets as of May 1 include cash of $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales). Sales on account for March and April were $60,000 and $72,000, respectively.

Current liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma's regular qtrly dividend of $5,000 is expected to be declared in June and paid in July.

Management desires to maintain a minimum cash balance of $30,000.


1.     Prepare a monthly cash budget and supporting schedules for May, June, and July 2016.

2.      On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?








Part 2   Evaluating Divisional Performance and Capital Investment Analysis

The three divisions of a Foods Co. are Snacks, Morning Foods, and Frozen. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for the prior year:

Snack                                    Morning Foods                       Frozen

Revenues                                2200000                                  2520000                                  2100000

Operating Expenses                         1366600                                1122000                                  976800

Income from Op

     Before service dept                  833400                                       1398000                               1123300

Service dept charges  

Promotion                                300000                                          600000                                         468000

Legal                                       137400                                          243600                                        235200

Total Service Dept charges      437400                                        843600                                         703200

Income from Operations           396000                                    554400                                         420000


Invested Assets                     2000000                                       1680000                               1750000


1.              Which division is making the best use of invested assets and should be given priority for future capital investments?  Consider ROI , the acceptable and  rate of return. Discuss  2 approaches to improving ROI. Also consider the  three divisions profit margin.


2.              Assuming that the minimum acceptable rate of return on new projects is 19%, would all investments that produce a return in excess of 19% be accepted by the divisions?


3.              Can you identify opportunities for improving the company's financial performance?


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