Question one 1. Calculate the cash flow budget and a pro forma a profit and loss statement for triad campers for the coming July - September quarter. Triad Campers Pro forma Profit & Loss Statement %
July
August
September
__-----
$204,000
$223,000
$240,000
62%
(126,480)
(138,260)
(148,800)
Gross profit
_-----_
$77,520
$84,740
$91,200
Less : General & Administrative Expenses
8.8%
(17,952)
(19,624)
(21,120)
Depreciation
Unchanged
(14,430)
(14,430)
(14,430)
Interest
Unchanged
(7,917)
(7,917)
(7,917)
Income before Taxes
-----
$37,221
$42,769
$47,733
Less: Taxes
38%
(14,144)
(16,252)
(18,139)
-----
$23,077
$26,517
$29,594
Forecasted sales Less : Cost of Goods Sold
( 38%)
Net Income
Triad Campers A Schedule of Projected Cash Receipts %
July
August
September
Forecasted sales
__
$204,000
$223,000
$240,000
Cash sales
0%
0
0
0
Collections of A/R :
__
March sales
13,471
0
0
April sales
111,525
17,844
0
May sales
0
124,350
19,896
June sales
0
0
137,700
July sales
20,400
0
0
August sales
0
22,300
0
September sales
0
0
24,000
$145,396
$164,494
$181,596
Other cash receipts Total cash receipts
__
Triad Campers A Schedule of Projected Cash Disbursements Forecasted sales Purchases Payments of A/P :
%
July
August
September
__
$204,000
$223,000
$240,000
32%
(65,280)
(71,360)
(76,800)
__
0
0
0
(4,200)
(4,200)
(4,200)
Salaries Wages
19.50%
(39,780)
(43,485)
(46,800)
Direct Factory
4.90%
(9,996)
(10,927)
(11,760)
(11,500)
(12,000)
(12,500)
(15,912)
(17,394)
(18,720)
Lease Payment
(19,000)
0
0
Interest
(7,917)
(7,917)
(7,917)
0
0
(19,800)
($173,585)
($167,283)
($198,497)
Administration expenses Selling Expenses
7.8%
Tax Payment Total cash disbursements
__
Triad Campers Cash Flow Budget Statement July
August
September
Total cash receipts
$145,396
$164,494
$181,596
Less : Total cash Disbursements
(173,585)
(167,283)
(198,497)
Net cash Flow
($28,189)
($2,789)
($16,901)
Add : Beginning Cash
72,000
43,811
41,022
Ending cash
43,811
41,022
24,121
Less : Minimum Cash Balance
(15,000)
(15,000)
(15,000)
Excess Cash Balance
28,811
26,022
9,121
Question two. How much increase in his line of credit will Tim need for the July –September quarter? If the increase is not granted, what can Tim cook do? Tim well not need to increase his line of credit of $60,000 during July –Sep Quarter since he will face Excess cash projected.
Question three. If sales are 20 percent greater than the July – September forecast, what would be the dollar effect on the cash flow and the profit and loss statement? Triad Campers Pro forma Profit & Loss Statement %
July
August
September
__
$244,800
$267,600
$288,000
62%
(151,776)
(165,912)
(178,560)
__
$93,024
$101,688
$109,440
8.8%
(21,542)
(23,549)
(25,344)
Depreciation
Unchanged
(14,430)
(14,430)
(14,430)
Interest
Unchanged
(7,917)
(7,917)
(7,917)
__
$49,135
$55,792
$61,749
38%
(18,671)
(21,201)
(23,465)
__
$30,463
$34,591
$38,284
Forecasted sales Less : Cost of Goods Sold Gross profit Less : General & Administrative Expenses
Income before Taxes Less :Taxes ( 38%) Net Income
Triad Campers A Schedule of Projected Cash Receipts %
July
August
September
Forecasted sales
__
$244,800
$267,600
$288,000
Cash sales
0%
0
0
0
Collections of A/R :
__
March sales
13,471
0
0
April sales
111,525
17,844
0
May sales
0
124,350
19,896
June sales
0
0
137,700
July sales
24,480
0
0
August sales
0
26,760
0
September sales
0
0
28,800
$149,476
$168,954
$186,396
Other cash receipts Total cash receipts
__
Triad Campers A Schedule of Projected Cash Disbursements Forecasted sales Purchases Payments of A/P :
%
July
August
September
__
$244,800
$267,600
$288,000
32%
(78,336)
(85,632)
(92,160)
__
0
0
0
(4,200)
(4,200)
(4,200)
Salaries Wages
19.50%
(47,736)
(52,182)
(56,160)
Direct Factory
4.90%
(11,995)
(13,112)
(14,112)
(11,500)
(12,000)
(12,500)
(19,094)
(20,873)
(22,464)
Lease Payment
(19,000)
0
0
Interest
(7,917)
(7,917)
(7,917)
0
0
(19,800)
($199,779)
($195,916)
($229,313)
Administration expenses Selling Expenses
7.8%
Tax Payment Total cash disbursements
__
Triad Campers Cash Flow Budget Statement July
August
September
Total cash receipts
$149,476
$168,954
$186,396
Less : Total cash Disbursements
(199,779)
(195,916)
(229,313)
Net cash Flow
($50,303)
($26,962)
($42,917)
Add : Beginning Cash
72,000
21,697
(5,265)
Ending cash
21,697
(5,265)
(48,182)
(15,000)
(15,000)
(15,000)
($20,265)
($63,182)
Less : Minimum Cash Balance Required total financing Excess Cash Balance
6,697
Question four. is sales are 30 percent less than the July –September forecast ,what will be the dollar effect on the cash flow and the profit and loss statements? Triad Campers Pro forma Profit & Loss Statement %
July
August
September
__
$142,800
$156,100
$168,000
62%
(88,536)
(96,782)
(104,160)
__
$54,264
$59,318
$63,840
8.8%
(12,566)
(13,737)
(14,784)
Depreciation
Unchanged
(14,430)
(14,430)
(14,430)
Interest
Unchanged
(7,917)
(7,917)
(7,917)
Income before Taxes
__
$19,351
$23,234
$26,709
38%
(7,353)
(8,829)
(10,149)
__
$11,997
$14,405
$16,560
Forecasted sales Less : Cost of Goods Sold Gross profit Less : General & Administrative Expenses
Less :Taxes ( 38%) Net Income
Triad Campers A Schedule of Projected Cash Receipts %
July
August
September
Forecasted sales
__
$142,800
$156,100
$168,000
Cash sales
0%
0
0
0
Collections of A/R :
__
March sales
13,471
0
0
April sales
111,525
17,844
0
May sales
0
124,350
19,896
June sales
0
0
137,700
July sales
14,280
0
0
August sales
0
15,610
0
September sales
0
0
16,800
$139,276
$157,804
$174,396
Other cash receipts Total cash receipts
__
Triad Campers A Schedule of Projected Cash Disbursements Forecasted sales Purchases Payments of A/P :
%
July
August
September
__
$142,800
$156,100
$168,000
32%
(45,696)
(49,952)
(53,760)
__
0
0
0
(4,200)
(4,200)
(4,200)
Salaries Wages
19.50%
(27,846)
(30,440)
(32,760)
Direct Factory
4.90%
(6,997)
(7,649)
(8,232)
(11,500)
(12,000)
(12,500)
(11,138)
(12,176)
(13,104)
Lease Payment
(19,000)
0
0
Interest
(7,917)
(7,917)
(7,917)
0
0
(19,800)
($134,295)
($124,333)
($152,273)
Administration expenses Selling Expenses
7.8%
Tax Payment Total cash disbursements
__
Triad Campers Cash Flow Budget Statement July
August
September
Total cash receipts
$139,276
$157,804
$174,396
Less : Total cash Disbursements
(134,295)
(124,333)
(152,273)
Net cash Flow
$4,981
$33,471
$22,123
Add : Beginning Cash
72,000
76,981
110,452
Ending cash
76,981
110,452
132,575
(15,000)
(15,000)
(15,000)
61,981
95,452
117,575
Less : Minimum Cash Balance Required total financing Excess Cash Balance
Question five. In an attempt to encourage dealers to pay sooner, Tim offered terms on 2/10 net 90. Do you find it surprising that only 10 percent of his customers took advantage of the discount and paid within 10 days? Defend your answer.
No, I did not find it surprising since the New Plant produce around 1000 unit of campers which mean that the sales price of one unit is around $200 and the discount is $20 and its not a big amount to look after ,so most of buyers prefer to postponed the payment rather than take the advantage of 10% discount . Question sex. Tim apparently thought that high profits guaranteed adequate cash to pay any bill as they came due. Explain to Tim the difference between profit and cash flow. In particular, explain how even a profitable, highly efficient firm can experience “cash crunches “and have a need for outside capital
Profit Calculated under accrual method and if the collection cycle is longer than Payment cycle firm should be able to finance its sales .and if sales grow to some level with a limited line of credit to finance such growth firm will not have enough cash to meet its short term obligations ( suppliers ) and will bankrupt. Question seven. Do you think that a cash budget is a more important financial tool for a small firm like Tim‘s or a very large firm like general motors? Defend your position. Cash Budget is important tool for both small and large firms but its has a vital role at small firms since large firms usually has enough sources to meet its short-term obligation and has the ability to get large finance to its operations and sales.
