Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 1 of 9

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1 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 1 of 9 Example page 116 Ross Pro s Sports Equipment + Projected sales... 4,800 units + Desired ending inventory (10% 4,800) Beginning inventory Units to be produced... 4,980 Example 2 January February March April Expected Sales, units 1,000 1,200 1,400 1,300 Add: Desired ending inventory Less: Beginning inventory on hand = Units to be produced or purchased 1,040 1,240 1,380 Ending inventory is projected to be 260 units on March 31 st. Example page 117 Total available: 400* *24 = 8, ,200 = $27,600 COGS: (400*21) + (300*24) = 8, ,200 = 15,600 Ending inventory: balance or 500*24 = 12,000 Example b FIFO only Total available: 600* *19 = 9, ,150 = $25,750 COGS: 600* *19 = 19,100 Ending inventory: balance or 350*19 = 6,650

2 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 2 of 9 Example 5 Bamco Jan Feb Sales: $80,000 1 $82,400 COGS 48, ,440 Gross profit 40% 32,000 32,960 Sales commissions 5% 3 (4,000) 4 (4,120) General expenses (10,000) (10,000) Amortization (5,000) (5,000) EBT 13,000 13,840 (2,600) (2,768) EAT $10,400 $11, ,000* GP is 40%, so COGS is 60%. 80,000* %*80, %*82,400 Example 6 Cash receipts or collections budget: January February March Sales $10,000 $12,000 $9,000 Cash collected in current month (40%) 4,000 4,800 3,600 Cash collected in month following sale (60%) *9,000 6,000 7,200 Total cash collected 13,000 10,800 10,800 * from Dec., given Accounts receivable balance at March 31 is projected to be 60% x 9,000, or $5,400.

3 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 3 of 9 Example p. 118 Watts Lighting Stores Cash Receipts Schedule May Jun Jul Aug Sep Oct Nov Dec Sales $33,000 $32,000 $30,000 $36,000 $25,000 Collections(30% of current sales) 9,000 10,800 7,500 Collections(40% of prior month's sales) 12,800 12,000 14,400 10,000 Collections(20% of sales 2 months earlier) 6,600 6,400 6,000 7,200 5,000 Total cash receipts $28,400 $29,200 $27,900 Accounts receivable at Sep 30 are 10, , ,000 = $22,200

4 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 4 of 9 Example 8: Problem 19, Page 119, with the addition of $1,000 per month amortization expense. Boswell Corporation Production Schedule: February March April May June Forecasted unit sales 6,000 8,000 5,500 4,000 + Desired ending inventory 12,000 8,250 6,000 Beginning inventory 9,000 12,000 8,250 Units to be produced 9,000 4,250 3,250 Cash Payments Schedule February March April May June Units produced 5,000 9,000 4,250 3,250 Materials ($5/unit) month after production $ 25,000 $ 45,000 $ 21,250 Labour ($10/unit) month of production 90,000 42,500 32,500 Fixed overhead 12,000 12,000 12,000 Dividends 20,000 Total cash payments $127,000 $ 99,500 $ 85,750 Note that amortization is a non-cash expense. It will appear on the Pro-Forma income statement.

5 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 5 of 9 Example Warren s Auto Parts Cash Receipts Schedule September October November December Sales $20,000 $25,000 $35,000 $30,000 Credit sales (80%) 16,000 20,000 28,000 24,000 Cash sales (20%) 4,000 5,000 7,000 6,000 Collections in month after sales (40%) 8,000 11,200 Collections two months after sale (60%) 9,600 12,000 Total cash receipts $24,600 $29,200 Cash Budget November December Cash receipts $24,600 $29,200 Cash payments 28,000 25,000 Net cash flow (3,400) 4,200 Beginning cash balance 6,000 6,000 Cumulative cash balance 2,600 10,200 Monthly loan or (repayment) 3,400 (3,400) Ending cash balance $ 6,000 $ 6,800 Cumulative loan balance 3,400 0

6 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 6 of 9 Example 10 Jan Feb Mar Apr May Cash Receipts 100, , ,000 95, ,000 Cash Payments Materials 70,000 80,000 90,000 50,000 60,000 Wages 30,000 35,000 36,000 30,000 35,000 Lease 1,000 1,100 1,000 1,000 1,000 Rent 2,000 2,000 2,000 2,000 2,000 Short term interest expense *20 ** Total payments 103, , ,001 83,191 98,073 *$2,000 loan balance X 12% X 1/12 **120 X 12% X 1/12 Cash Budget: Total receipts 100, , ,000 95, ,000 Total payments 103, , ,001 83,191 98,073 Net cash flow (3,000) 1,880 (19,001) 11,809 31,927 Opening cash balance 10,000 9,000 9,000 9,000 9,000 Subtotal 7,000 10,880 (10,001) 20,809 40,927 Loan borrowing (repaid) 2,000 (1,880) 19,001 (11,809) (7,312) Closing cash balance 9,000 9,000 9,000 9,000 33,615 Loan balance 2, ,121 7,312 -

7 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 7 of 9 Balance Sheet at December 31, 20x8 Cash 20,000 AR 315,000 Inv 189,000 Capital assets 300,000 Accumulated Amort 100,000 Net 200,000 Total 724,000 AP 279,000 Taxes Payable 37,000 Common Shares 300,000 Retained Earnings 108,000 Total 724,000 Nov Dec Jan Feb Mar Apr Sales in units 3,600 1,500 2,100 3,500 3,000 Selling price 250 Cash Receipts Schedule Sales in Dollars 900, , , ,000 Closing A/R Cash sales 40% 360, , , , ,500 Rct from prev month 50% 450, , , ,500 Rct from 2nd prev month 10% 90,000 37,500 52,500 87,500 Loan proceeds 80,000 Total cash receipts 567, ,000 Opening A/R 315,000 Walt Burton 2008

8 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 8 of 9 Purchases Schedule in units Nov Dec Jan Feb Mar Units required for Sales 3,600 1,500 2,100 3,500 3,000 1,800 * $150 = Desired ending inventory 900 1,260 2,100 1,800 $ 270,000 Ending inv. less: Beginning inventory (900) (1,260) (2,100) Purchases, Units 1,860 2,940 3,200 Unit cost Purchases in Dollars 279, , ,000 Payment in Following month Opening A/P 279, , ,000 Closing A/P Cash Payments Schedule Payments for purchases 279, ,000 Selling and admin 52,500 87,500 Wages 85,000 85,000 Rent 9,000 9,000 Tax pmt 25,000 25,000 Modernization 100,000 LT loan interest 6% pa ST loan interest 9% pa 71 Dividend paid 40,000 Total 590, ,971 Cash Budget Cash Receipts 567, ,000 Cash Payments 590, ,971 Net Cash Flow (23,400) 2,029 Beginning Cash 20,000 6,000 Cumulative Cash (3,400) 8,029 ST loan required (paid) 9,400 (2,029) Ending Cash 6,000 6,000 Closing cash Cumulative Loan 9,400 7,371 ST loan bal Walt Burton 2008

9 Buad 195 Chapter 4 Example Solutions, Pre-Midterm Page 9 of 9 Income Statement Jan Feb Total Sales 525, ,000 1,400,000 Cost of goods sold 315, , ,000 Gross Profit 210, , ,000 Selling and admin 52,500 87, ,000 Wages 85,000 85, ,000 Rent 9,000 9,000 18,000 Amortization 2,500 2,500 5,000 LT loan interest 6% pa ST loan interest 9% pa Total expenses 149, , ,871 Net income before tax 60, , ,129 Income Taxes 15,150 41,382 56,532 Net income $45, ,147 $169,597 Retained Earnings for the first two months Beg RE $108,000 Taxes payable Net income 169,597 Opening 37,000 Dividends 40,000 Instalments (50,000) Ending RE $237,597 Expense 56,532 Closing 43,532 Balance Sheet Cash 6,000 AR 577,500 Inv 270,000 Equipment 400,000 Accumulated Amort 105,000 Net 295,000 Total 1,148,500 AP 480,000 Taxes Payable 43,532 ST Loan payable 7,371 LT loan payable 80,000 Common Shares 300,000 Retained Earnings 237,597 Total 1,148,500 Walt Burton 2008