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