Top-Rated Free Essay

# Problems 14.16 Marine Tect

Good Essays
950 Words
Grammar
Plagiarism
Writing
Score
Problems 14.16 Marine Tect
Chapter 14 (Cost Planning)

Problem 14.16 part A only (LO8)

Cash budget – comprehensive. Following are the budgeted income statements for the second quarter of 2010 for Marine Tech, Inc.:

| |April |May |June |
|Sales……………………….. |\$224,000 |\$272,000 |\$304,000 |
|Cost of goods sold*............... | 153,600 | 182,400 | 201,600 |
|Gross Profit………………... |\$ 70,400 |\$ 89,600 |\$102,400 |
|Operating Expenses**…….. | 35,200 | 40,000 | 43,200 |
|Operating income…………. |\$ 35,200 |\$ 49,600 |\$ 59,200 |

* Includes all product costs (i.e., direct materials, direct labor, and manufacturing overhead).

** Includes all period costs (i.e., selling, general, and administrative expenses).

The company expects about 40% of sales to be cash transactions. Of sales on account, 65% are expected to be collected in the first month after the sale is made, and 35% are expected to be collected in the second month after sale. Depreciation, insurance, and property taxes represent \$19,200 of the estimated monthly cost of goods sold and \$12,800 of the estimated monthly operating expenses. The annual insurance premium is paid in January, and the annual property taxes are paid in August. Of the remainder of the cost of goods sold and operating expenses, 90% are expected to be paid in the month in which they are incurred, and the balance is expected to be paid in the following month.

Current assets as of April 1, 2010, consist of \$22,400 and accounts receivable of \$239,680 (\$168,000 from March credit sales and \$71,680 from February credit sales). Current liabilities as of April 1, consist of \$28,800 of accounts payable for product costs incurred in March: \$7,360 of accrued liabilities for operating expenses incurred in March: and a \$76,000 , 12%, 120-day note payable that is due on April 17, 2010.

An estimated income tax payment of \$72,000 will be made in May. The regular quarterly dividend of \$25,600 is expected to be declared in May and paid in June. Capital expenditures amounting to \$27,520 will be made in April.

Required:

a. Complete the monthly cash budgets for the second quarter for 2010 using the following format. Note that the ending cash balance for June is provided as a check figure.

|MARINE TECH, INC. |
|Cash Budget |
|For the Months of April, May, and June 2010 |
| |April |May |June |
|Beginning cash balance……………………………….. |\$22,400 |\$9,040 |\$4,960 |
|Cash Receipts: | | | | |
|From cash sales made in current month………………. |(\$224,000x0.4) |(\$272,000x0.4) |(\$304,000x0.4) |
| |=\$89,600 |=\$108,800 |=\$121,600 |
|From credit sales made in: | | | |
| |February………………………………………. |\$71,680 | | |
| |March…………………………………………. |(\$168,000x0.65) |(\$168,000x0.35) | |
| | |=\$109,200 |=\$58,800 | |
| |April…………………………………………… | |(\$224,000x0.6x0.65) |(\$224,000x0.6x0.35) |
| | | |=\$87,360 |=\$47,040 |
| |May…………………………………………… | | |(\$272,000x0.6x0.65) |
| | | | |=\$106,080 |
|Total cash available: |\$292,880 |\$264,000 |\$279,680 |
|Cash Distribution: | | | |
|For cost of goods sold and operating expenses incurred in: | | | |
| |March………………………………………….. |(\$28800+\$7360)=\$ 36,160 | | |
| |April……………………………………………. |(\$153,600+35,200-19,200-1|(\$153,600+35,200-19,200-1| |
| | |2,800)x0.9 |2,800)x0.1 | |
| | |=\$141,120 |=\$15,680 | |
| |May…………………………………………….. | |(\$182,400+40,000-19,200-1|(\$182,400+40,000-19,200-1|
| | | |2,800)x0.9 |2,800)x0.1 |
| | | |=\$171,360 |=\$19,040 |
| |June…………………………………………….. | | |(\$201,600+43,200-19,200-1|
| | | | |2,800)x0.9 |
| | | | |=\$191,520 |
|For payment of note payable and interest…………….. |(\$76,000x0.12/12x4)+\$76,0| | |
| |00) | | |
| |=\$79,040. | | |
|For capital expenditures………………………………. |\$27,520 | | |
|For payment of income taxes…………………………. | |\$72,000 | |
|For payment of dividends…………………………….. | | |\$25,600 |
|Total disbursements…………………………………... |\$283,840 |\$259,040 |\$236,160 |
|Ending cash balance………………………………….. |(\$292,880-\$283,840) |(\$264,000- \$259,040) |(\$279,680-\$236,160) |
| |=\$9,040 |=\$4,960 |=\$43,520 |

b. Assume that management of Marine Tech., desires to maintain a minimum cash balance of \$20,000 at the beginning of each month and has arranged a \$100,000 line of credit with a local bank at an interest rate of 10% to ensure the availability of funds. Borrowing transactions are to occur only at the end of months in which the budgeted cash balance would otherwise fall short of the \$20,000 minimum balance. Repayments of principal and the interest are to occur at the earliest month in which sufficient funds are expected to be available for repayment. Explain how this minimum cash balance requirement would affect the monthly cash budgets prepared in part a.

|MARINE TECH, INC. |
|Cash Budget |
|For the Months of April, May, and June 2010 |
| |April |May |June |
|Beginning cash balance………………………… |\$22,400 |\$20,000 |\$20,000 |
|Cash Receipts: | | | | |
|From cash sales made in current month………………. |\$89,600 |\$108,800 |\$121,600 |
|From credit sales made in: | | | |
| |February……………………………………… |\$71,680 | | |
| |March…………………………………………. |\$109,200 |\$58,800 | |
| |April…………………………………………… | |\$87,360 |\$47,040 |
| |May…………………………………………… | | |\$106,080 |
|Total cash available: |\$292,880 |\$274,960 |\$294,720 |
|Cash Distribution: | | | |
|For cost of goods sold and operating expenses incurred in: | | | |
| |March…………………………………………. |\$ 36,160 | | |
| |April…………………………………………… |\$141,120 |\$15,680 | |
| |May……………………………………………. | |\$171,360 |\$19,040 |
| |June…………………………………………… | | |\$191,520 |
|For payment of note payable and interest………… |\$79,040. | | |
|For capital expenditures…………………………… |\$27,520 | | |
|For payment of income taxes……………………… | |\$72,000 | |
|For payment of dividends…………………………….. | | |\$25,600 |
|Total disbursements…………………………………... |\$283,840 |\$259,040 |\$236,160 |
|Ending cash balance………………………………….. |(\$292,880-\$283,840) |(\$274,960-\$259,040) |(\$294,720-\$236,160) |
| |=\$9,040 |=\$15,920 |=\$58,560 |
|Financing | | | |
|Borrowing |(\$20,000-9,040) |(\$20,000-15,920) | |
| |=\$10,960 |=\$4,080 | |
|Repayment | | |(\$10,960+\$4,080) |
| | | |=(\$15,040) |
|Interest | | |(\$10,960x0.1/12x2)+(4,|
| | | |080x0.1/12) |
| | | |=(\$183+34) |
| | | |=(\$217) |
|Total Financing |\$10,960 |\$4,080 |(\$15,257) |
|Ending cash balance |(\$9,040+\$10,960) |(\$15,920+\$4,080) |(\$58,560-\$15,257) |
| |=\$20,000 |=20,000 |=\$43,303 |

## You May Also Find These Documents Helpful

• Satisfactory Essays

65,000 100,000 50,000 \$10 \$650,000 Correct! Requirement 1b. Schedule of expected cash collections: February sales \$26,000 March sales 280,000 April sales 130,000 May sales June sales Total cash collections \$436,000 Correct! Requirement 1c. Merchandise purchases budget: Budgeted unit sales 65,000 100,000 Add desired ending inventory 40,000 Total needs 105,000 Less beginning inventory 26,000 Required purchases in units 79,000 Unit cost \$4 Required dollar purchases \$316,000 Correct! Requirement 1d. Budgeted cash disbursements for merchandise purchases: Accounts payable 100,000 April purchases 158,000 158,000 May purchases June purchases Total cash disbursements \$258,000 Correct!…

• 376 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

The total values of assets is \$101,381 million dollars which can be found on page 60 of the Annual Report. This information would be of importance to a potential creditor because it provides an indication of whether the company would be able to repay any accumulated debt. It also provides a picture of how liquid those assets might be.…

• 341 Words
• 2 Pages
Satisfactory Essays
• Good Essays

Assets Liabilities and Owener`s EquityCurrent assets \$2,170 Current liabilities \$1350Net fixed assets \$9,300 Long-term debt \$3980 Shareholders` equity \$6140Total assets \$11470 Total liabilities and shareholders` equity \$11470…

• 734 Words
• 3 Pages
Good Essays
• Satisfactory Essays

Monthly expenses are as follows: commissions, \$13,050; rent, \$2,150; other expenses (excluding depreciation), 7% of sales. Assume that these expenses are paid monthly. Depreciation is \$2,500 for the quarter and includes depreciation on new assets acquired during the quarter.…

• 434 Words
• 4 Pages
Satisfactory Essays
• Satisfactory Essays

3/31/86 Assets Current Assets Cash Receivables, Net Inventories Prepaid Expenses Total Current Assets Fixed Assets Plant, Property, & Equipt (Less) accum depreciation Total Net Fixed Assets Other Assets Total Assets Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Notes Payable - banks Income Taxes Payable Current Installments - lt debt Total Current Liabilities Long Term Debt Term Loan Notes Payable to Bank Total Liabilities Stockholders' Equity Common Stock Additional Paid in Capital Retained Earnings Total Stockholders' Equity Total Liabilities and Equity…

• 618 Words
• 3 Pages
Satisfactory Essays
• Good Essays

Sixty percent of all purchases, selling and administrative expenses, and advertising expenses are paid in the month incurred. The remainder is paid in the following month. Ending inventory is set at 25 percent of the next month's budgeted cost of goods sold. The company's gross profit averages 30 percent of sales for the month. Selling and administrative expenses follow the formula of 5 percent of the current month's sales plus \$75,000, which includes depreciation of \$5,000. Advertising expenses are budgeted at 3 percent of sales.…

• 987 Words
• 4 Pages
Good Essays
• Good Essays

Current assets: Cash Accounts Receivable Notes Receivables Prepaid AssetsNon-current Assets: Long-term Investments Property, Plant and Equipment Intangible Assets…

• 2650 Words
• 11 Pages
Good Essays
• Good Essays

The Total Assets from the company represent a figure of 21,300 in the latest year, which represent a decrease of 3.82% from the previous year. The Current Assets sum up a total of 30.44% and 32.31% of the Total Assets as of January 2009 and January 2010 dates respectively, which represent a real growth, between the dates, of \$142 to reach the \$6,882. Part of this growth is due to the increase of 29.1% of the Cash and Cash Equivalents account, which in the later date is valued as \$1,686; it also increase its participation in the total assets from 5.9% to 7.92% from one year to another. Also worthwhile mentioning is the significant reduction of the Accounts Receivable of 18.45% which varied \$81 from the \$439 figure we had in the FY08.…

• 803 Words
• 4 Pages
Good Essays
• Good Essays

Accounts receivable and inventory remained relatively constant during the year. Assets at the beginning of the year totalled \$250,000 and the stockholders’ equity at the beginning of the year amounted to \$180,000. Preferred stock did not change during the year. There are no convertible securities.…

• 653 Words
• 5 Pages
Good Essays
• Satisfactory Essays

The policy is to acquire enough inventory each month to equal the following month’s projected cost of goods sold. All purchases are paid for in the month following purchase. Salaries, wages, and commissions average 20% of sales; all other variable expenses are 4% of sales. Fixed expenses for rent, property taxes, and miscellaneous payroll and other items are \$55,000 monthly. Assume that these variable and fixed expenses require cash disbursements each month. Depreciation is \$2,500 monthly. In June, \$55,000 is going to be disbursed for fixtures acquired and recorded in furniture and fixtures in May. The May 31 balance of accounts…

• 692 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

Sales are projected to be \$125,200 in January, \$105,100 in February, and \$112,600 in March. Accounts receivable are expected to double during the quarter, and accounts payable are expected to decrease by 20%. Mortgage payments for the quarter will total \$6,000, of which \$2,000 will be interest expense. Prepaid expenses are expected to go up by \$20,000, and other assets are projected to increase by 50% over the budget period. Depreciation for plant and equipment (already included in the overhead budget) averages 5% of total plant and equipment per year. Federal income taxes (30% of profits) are payable in April. The company pays no dividends.…

• 551 Words
• 3 Pages
Satisfactory Essays
• Good Essays

Assumed equal to 30% of the current month’s sales and related to material purchases of \$3,000,000 for 1994 as against sales of \$10 million. This represents a 30-day payment period. Since inventories are…

• 487 Words
• 11 Pages
Good Essays
• Satisfactory Essays

What are the company’s total current liabilities at the end of its most recent annual reporting period?…

• 197 Words
• 1 Page
Satisfactory Essays
• Powerful Essays

In 2012, the company had current assets of \$5,619 and a net worth of \$1,765. EBIT was \$650 and net income was \$236. Sales were \$10,000 at a cost of \$9350. Our strategy was to acquire a new customer and tighten accounts receivable. We chose these options because we felt that it was important to find ways to make more revenue and try to prevent us from running out of cash.…

• 1863 Words
• 4 Pages
Powerful Essays
• Good Essays

Cash and Accounts Receivable in Current Assets- the sum for Cash was found by multiplying the total operating revenue (\$56,700) by 25%, which equals the \$42,525 in cash. This leaves the remaining \$14,175 as credit, which belongs in Accounts Receivable.…

• 628 Words
• 3 Pages
Good Essays