Details Please Complete The Following Exercises Or Problem

Detailsplease Complete The Following Exercises Andor Problems From T

Please complete the following exercises and/or problems from the textbook: · E22-24 · E22-27 · CP22-56 · E22A-32 Prepare your answers in an Excel workbook, using one worksheet per exercise or problem. Microsoft Word is also acceptable.

E22-24 Preparing an operating budget Dunbar Company manufactures drinking glasses. One unit is a package of 8 glasses, which sells for $20. Dunbar projects sales for April will be 3,000 packages, with sales increasing by 100 packages per month for May, June, and July. On April 1, Dunbar has 250 packages on hand but desires to maintain an ending inventory of 10% of the next month’s sales. Prepare a sales budget and a production budget for Dunbar for April, May, and June.

E22-27 Preparing a financial budget Cramer Company projects the following sales for the first three months of the year: $12,500 in January; $13,240 in February; and $14,600 in March. The company expects 70% of the sales to be cash and the remainder on account. Sales on account are collected 50% in the month of the sale and 50% in the following month. The Accounts Receivable account has a zero balance on January 1.

Requirements:

1. Prepare a schedule of cash receipts for Cramer for January, February, and March. What is the balance in Accounts Receivable on March 31?
2. Prepare a revised schedule of cash receipts if receipts from sales on account are 60% in the month of the sale, 30% in the month following the sale, and 10% in the second month following the sale. What is the balance in Accounts Receivable on March 31?

E22A-32 Preparing an operating budget Tremont, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2014, follows: Quarter Ended Nine-Month Total March 31 June 30 September 30 Cash sales, 20% $24,000 $34,000 $29,000 $87,000 Credit sales, 80% $96,000 Total sales $120,000 $170,000 $145,000 $435,000. In the past, cost of goods sold has been 40% of total sales.

The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below $20,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of $220,000 during the fourth quarter. The January 1 inventory was $32,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.

P22-56 Preparing a financial budget This problem continues the Davis Consulting, Inc. situation from Problem P21-63 of Chapter 21. Assume Davis Consulting began January with $29,000 cash. Management forecasts that cash receipts from credit customers will be $49,000 in January and $51,500 in February. Projected cash payments include equipment purchases ($17,000 in January and $40,000 in February) and selling and administrative expenses ($6,000 each month). Davis’s bank requires a $20,000 minimum balance in the firm’s checking account.

At the end of any month when the account balance falls below $20,000, the bank automatically extends credit to the firm in multiples of $5,000. Davis borrows as little as possible and pays back loans each month in $1,000 increments, plus 5% interest on the entire unpaid principal. The first payment occurs one month after the loan.

Requirements:

1. Prepare Davis Consulting’s cash budget for January and February 2013.
2. How much cash will Davis borrow in February if cash receipts from customers that month total $21,500 instead of $51,500?

Paper For Above instruction

The exercises and problems outlined above challenge students and finance professionals to develop comprehensive budgets, financial forecasts, and cash flow analyses critical for effective financial planning and management in various business contexts. Successfully addressing these problems requires an understanding of sales forecasting, inventory management, receivables collections, and cash budgeting, integrating theoretical knowledge with practical application. This paper discusses the key concepts involved in these exercises, elaborates on their importance, and illustrates approaches to solving them effectively.

Introduction to Budgeting and Financial Planning

Budgeting is a fundamental tool in financial management that allows businesses to plan, coordinate, and control financial resources over a specific period. It involves estimating future sales, costs, and cash flows, enabling management to make informed decisions regarding production, investments, and operational activities. The exercises provided offer a practical perspective on developing sales budgets, production budgets, and cash budgets—each serving different strategic and operational purposes.

Sales and Production Budgeting (E22-24)

The first scenario emphasizes the importance of aligning sales projections with production planning. Dunbar Company’s case highlights the necessity of predicting sales volume and establishing inventory levels that ensure operational continuity without excess stock. Calculating the sales budget involves multiplying projected sales units by the unit price, while the production budget considers beginning inventory, desired ending inventory, and projected sales. Proper planning ensures the company maintains optimal inventory levels, thereby controlling costs and preventing stockouts or overstocking.

For Dunbar, the sales budget involves increasing sales by 100 packages per month, starting from 3,000 in April. The production budget accounts for the beginning inventory and the targeted ending inventory, which is set at 10% of the subsequent month’s sales. This strategic approach helps balance production capacity with market demand, reduces holding costs, and improves cash flow management.

Cash Receipts and Accounts Receivable Management (E22-27)

Efficient management of accounts receivable and cash collections is vital for maintaining liquidity. Cramer Company’s scenario presents two collection strategies—50% of sales on account collected in the month of sale and 50% in the following month; and a revised plan with different collection percentages. Calculating cash receipts involves breaking down sales into cash and credit components, then applying collection percentages. These exercises illustrate how changing collection policies impact cash flow and accounts receivable balances.

Accurate forecasting of cash inflows enables companies to plan for short-term financing needs, operational expenses, and investment opportunities. The second approach demonstrates how adjusting collection assumptions affects receivable balances, highlighting the importance of credit policies and collection efficiency in cash flow management.

Inventory and Cost of Goods Sold Budgeting (E22A-32)

The scenario involving Tremont, Inc. illustrates the complexities of managing inventory levels in line with sales forecasts and cost of goods sold (COGS). It emphasizes the importance of maintaining minimum inventory thresholds to avoid stockouts while preventing excess inventory that ties up capital. The exercise involves projecting sales and COGS, calculating ending inventories, and determining purchase needs to meet inventory requirements.

Accurate inventory budgeting helps streamline production scheduling, reduces storage costs, and ensures availability of products to meet customer demand. The calculation of COGS over multiple quarters provides insight into overall profitability and capacity planning, which are crucial for strategic decision-making.

Cash Budgeting and Short-term Financing (P22-56)

The Davis Consulting scenario underscores the importance of cash budgeting and managing liquidity. Forecasting cash inflows from receivables and outflows for expenses and investments enables businesses to anticipate shortfalls or surpluses. In cases where the cash balance drops below a minimum threshold, obtaining short-term credit becomes necessary. The exercise involves preparing a detailed cash budget and analyzing borrowing needs, considering interest costs and repayment plans.

Effective cash management ensures that a company maintains sufficient liquidity for operational needs while minimizing borrowing costs. This scenario demonstrates how proactive cash budgeting and short-term financing strategies support financial stability and operational efficiency.

Conclusion

Mastering budgeting techniques and cash flow analysis is essential for effective financial management in any business. The exercises analyzed emphasize critical skills such as sales forecasting, inventory control, receivables management, and short-term financing. By integrating these components into comprehensive budgets, managers can ensure optimal resource allocation, maintain liquidity, and achieve strategic goals. Ultimately, robust budgeting processes support business sustainability and growth in dynamic market environments.

References

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