Santana Rey Expects Second Quarter 2012 Sales Of Her New Lin ✓ Solved

Santana Rey Expects Second Quarter 2012 Sales Of Her New Line Of Compu

Prepare budgeted income statements for April, May, and June based on the provided sales data, pricing, and expense assumptions, and compare the results from implementing the proposed sales and pricing strategies. Also, compute cash collections, ending inventories, merchandise purchases, cash payments on purchases, and develop a cash budget including loan activity and interest expenses. Additionally, prepare the sales budget, purchase budget, selling expense budget, general and administrative expense budget, capital expenditure budget, cash budget, and then summarize in a budgeted income statement and balance sheet for the first quarter.

Sample Paper For Above instruction

Introduction

Budgeting is a fundamental aspect of financial planning, enabling businesses to forecast revenues, expenses, cash flows, and profitability. This paper provides a comprehensive analysis of Santana Rey’s new computer furniture line’s projected financial performance for April, May, and June 2012, considering proposed changes in sales prices and marketing strategies. The analysis includes setting up detailed budgeted income statements, calculating cash collections from credit sales, determining ending inventory levels, planning merchandise purchases, estimating cash payments, and formulating a cash budget that accounts for loan activities. The goal is to assess the expected financial outcomes under the new strategic initiatives and provide an insightful overview for managerial decision-making.

Budgeted Income Statements for April, May, and June

Given the data, Santana Rey expects an increase in sales volume over the next three months with adjusted prices. Sales prices are reduced to 1150 for desks and 450 for chairs, with a forecasted increase in units sold. Advertising expenses are increased by 10% and remain consistent, while fixed manufacturing costs decrease to 10,000 per month and other fixed expenses remain at 6,000. The sales commissions are calculated at 10% of sales revenue, and variable costs per unit remain unchanged, at 750 for desks and 250 for chairs.

For April, sales are projected at 48 desks and 32 chairs, May at 52 desks and 35 chairs, June at 56 desks and 38 chairs. The monthly revenues are calculated by multiplying units sold by the new selling prices, and the cost of Goods Sold (COGS) is computed based on variable unit costs. Gross profit, expenses, and net income are then derived for each month.

April:

  • Sales revenue: (48 x 1150) + (32 x 450) = 55,200 + 14,400 = 69,600
  • Variable COGS: (48 x 750) + (32 x 250) = 36,000 + 8,000 = 44,000
  • Gross profit: 69,600 - 44,000 = 25,600
  • Expenses: Advertising (9,900),Sales commissions (10% of sales, 6,960), Fixed manufacturing (10,000), Other fixed (6,000): Total expenses = 32,860
  • Net income: 25,600 - 32,860 = -7,260

Similarly, calculations for May and June follow the same methodology, adjusting units sold accordingly. The resultant income statements reveal profitability trends, highlighting the impact of pricing and volume changes on margins and net income.

Cash Collections from Credit Sales

Sales are on credit, and collection patterns suggest that a percentage of each month’s credit sales are collected in subsequent months. Assuming 75% of current month sales are collected in the same month and 25% in the following month, we can develop a cash collection table. For example, the cash collections from June sales include 75% of June’s sales plus 25% of May’s sales.

  • June collections: (75% of June sales) + (25% of May sales) = (0.75 x 69,600) + (0.25 x 62,200) = 52,200 + 15,550 = 67,750
  • July collections: (75% of July sales) + (25% of June sales) = (0.75 x 74,400) + (0.25 x 69,600) = 55,800 + 17,400 = 73,200

This pattern helps forecast the actual cash inflow for each month, critical for cash management and planning.

Ending Inventories and Merchandise Purchases

Forecasted ending inventory units are based on next month’s sales, assuming a policy of holding inventory equal to next month’s expected sales units. For April, ending inventory for desks is the May forecasted units, and for chairs, likewise. Purchases are calculated to meet the expected ending inventory plus current month’s sales, minus beginning inventory. Calculation of purchases in units precedes dollar value computation.

  • May purchase units for desks: (June sales units) + desired ending inventory - beginning inventory
  • Translate units into dollar purchases by multiplying units by variable costs for each product component.

For example, in May, purchase units for desks: 52 units (June sales). Purchases cost = 52 x 750.

Cash Payments on Product Purchases

Assuming 60% of purchases are paid in the month of purchase and 40% in the following month, cash outlays are calculated accordingly. For June, payments include 60% of June purchases plus 40% of May purchases. Remaining payment calculations for July follow a similar approach, facilitating accurate cash budgeting.

Cash Budget and Loan Analysis

The cash budget accounts for beginning cash balance, cash receipts (from collections), cash disbursements (purchases, expenses, debt service), and the resulting ending cash balance. If cash deficits occur, short-term loans are considered, with interest expenses calculated based on the outstanding loan balance, and repayments scheduled as needed.

The seasonal fluctuation in sales influences cash flow, and maintaining an adequate cash reserve may require short-term borrowing, especially during months with high purchase and expense outflows. Loan balances are updated monthly, considering borrowing and repayments, with interest expenses accrued accordingly.

Additional Financial Plans

Further analysis includes detailed budgets for sales, purchases, expenses, capital expenditures, and the resulting income statement and balance sheet for the quarter, aiding in overall financial planning and strategic decision-making. The budgeted balance sheet projects assets and liabilities as of March 31, 2012, reflecting the planned financial position based on the budgets prepared.

Conclusion

This comprehensive planning exercise demonstrates how strategic pricing, sales volume increases, and effective cash management can influence the financial health of Santana Rey’s new product line. Accurate budgeting facilitates proactive decision-making, helps identify funding needs, and supports sustainable growth.

References

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