Bombs Away Video Games Corporation Forecasted The Follow

Bombs Away Video Games Corporation Has Forecasted The Following Mont

Construct a monthly production and inventory schedule, prepare cash receipts and payments schedules from January to December, and analyze alternative financing plans and interest costs for Bombs Away Video Games Corporation based on forecasted sales, costs, and collections data. Include all calculations for production units, inventory levels, cash collections from sales (cash and credit), cash disbursements for production costs and other expenses, as well as comparisons of financing strategies and their impact on interest payments and earnings after taxes.

Paper For Above instruction

Introduction

Bombs Away Video Games Corporation is preparing comprehensive financial plans for the upcoming year, which involves estimating production schedules, cash flow, and funding strategies. Accurate planning is crucial to ensure smooth operations, maintain adequate inventories, and optimize financial resources. This paper develops detailed monthly production, inventory, cash receipts, and payments schedules based on forecasted sales and costs. Additionally, it explores alternative financing strategies, comparing conservative and aggressive approaches, as well as analyzing interest costs for short-term versus long-term funding options. These analyses help in understanding the financial implications and guiding strategic decision-making for the company.

Monthly Production and Inventory Schedule

The company forecasts total annual sales of $732,000, with a selling price of $5 per unit, translating to 146,400 units (since $732,000 / $5 = 146,400 units). The monthly sales in units are calculated accordingly, and the production for each month follows the policy of producing the annual sales divided by 12, which equals 12,200 units per month (146,400 units / 12). Beginning inventory for January is 23,000 units.

Sales per month in units are derived from the forecasted dollar sales:

  • January: 98,000 / 5 = 19,600 units
  • February: 91,000 / 5 = 18,200 units
  • March: 23,000 / 5 = 4,600 units
  • April: 23,000 / 5 = 4,600 units
  • May: 18,000 / 5 = 3,600 units
  • June: 33,000 / 5 = 6,600 units
  • July: 43,000 / 5 = 8,600 units
  • August: 43,000 / 5 = 8,600 units
  • September: 53,000 / 5 = 10,600 units
  • October: 83,000 / 5 = 16,600 units
  • November: 103,000 / 5 = 20,600 units
  • December: 121,000 / 5 = 24,200 units

Production for each month is set at 12,200 units, with inventory adjustments calculated accordingly: beginning inventory + production – sales = ending inventory. This process establishes the monthly inventory levels needed to meet demand while maintaining consistent production levels.

Cash Receipts Schedule

The company collects 40% of each month’s sales in cash within the same month and 60% on credit, which is collected in the following month. Consequently, cash receipts in any month consist of:

  • Cash sales from the current month (40% of that month's sales)
  • Collections of previous month’s credit sales (60% of previous month's sales)

Starting with December’s sales of $100,000 (which preceded this planning period), the cash receipts are calculated month by month, ensuring accurate reflection of actual cash inflow based on credit policies.

Cash Payments Schedule

Cash disbursements include payments for production costs and additional expenses. Since production costs are paid monthly in the same period at $2 per unit, the schedule multiplies production units by $2 to determine each month’s payment. Other fixed monthly payments are set at $43,000. This arrangement results in a detailed cash payments schedule, highlighting the cash flow needed for manufacturing and operational expenses.

Alternative Financing Plans and Interest Cost Analysis

Guardian Inc. seeks to finance its assets through two strategies: a conservative plan with 60% of assets financed long-term, and an aggressive plan with only 56.25% (which is 9/16) financed long-term. The company's total assets comprise $400,000 in temporary current assets, $300,000 in permanent current assets, and $500,000 in fixed assets, totaling $1,200,000.

Interest expenses are computed at 13% for long-term funding and 8% for short-term funding under the initial scenario. Using these rates, annual interest payments and net earnings after taxes (with a 25% tax rate) are calculated for each financing approach. These calculations are then revised with reversed interest rates to analyze the sensitivity of outcomes to market changes.

Cost Comparison of Loan Options for Biochemical Corp.

Biochemical Corp. intends to finance $740,000 over three years. The interest costs on a fixed, three-year loan at 12.60% are contrasted with short-term financing options with varying rates over three years. The total interest cost under each strategy is calculated, demonstrating which one tends to be more economical: long-term fixed-rate or short-term variable-rate borrowing.

Short-term Financing Requirements for Carmen’s Beauty Salon

The salon projects varying monthly financing needs over six months, with rates increasing from 5% in January to 12% by April through June. Calculations involve determining the break-even long-term interest rate where total costs of short-term and long-term financing are equivalent, providing insight into optimal financing decisions.

Asset-Liquidity and Financing Strategy for Hogan Surgical Instruments Co.

Hogan Surgical Instruments has assets totaling $2,700,000, and it considers different strategies: low-liquidity with higher returns but higher risk, or high-liquidity with safer, lower returns. Financing costs differ between short-term (7%) and long-term (9%), with expected returns depending on the liquidity approach. Calculations determine which combination yields the most advantageous returns after considering financing expenses.

Conclusion

Effective financial planning involves analyzing inventory, cash flows, and funding strategies thoroughly. For Bombs Away Video Games, detailed production and cash receipts schedules aid in managing operations efficiently. Strategic choice between financing options significantly impacts costs and profitability, emphasizing the importance of carefully evaluating risk, interest rates, and return on assets. These comprehensive analyses support informed decision-making aimed at maintaining financial health and operational stability throughout the year.

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