Reference no: EM131810493

1. Estimate Sales Revenues

Friendly Financial has $160 million in consumer loans with an average interest rate of 12.5 percent. The bank also has $96 million in home equity loans with an average interest rate of 8 percent. Finally, the company owns $20 million in corporate securities with an average rate of 5 percent.

Managers at Friendly Financial estimate that next year its consumer loan portfolio will rise to $168 million and the interest rate will fall to 10.5 percent. They also estimate that its home equity loans will fall to $80 million with an average interest rate of 9 percent, and its corporate securities portfolio will increase to $25 million with an average rate of 6 percent.

Required

Estimate Friendly Financial's revenues for the coming year.

2. Estimate Sales Revenues

Larson, Inc., manufactures backpacks. Last year, it sold 85,000 of its basic model for $25 per unit. The company estimates that this volume represents a 20 percent share of the current market. The market is expected to increase by 15 percent next year. Marketing specialists have determined that as a result of new competition, the company's market share will fall to 16 percent (of this larger market). Due to changes in prices, the new price for the backpacks will be $22 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates.

Required

Estimate Larson's sales revenues from this model of backpack for the coming year.

3. Estimate Production Levels: Capacity Constraints

Waterloo, Ltd. manufactures a component used in aircraft navigation systems. Demand has been strong and the executive staff at Waterloo is planning for next year. Yesterday, you were called into a budgeting meeting where production plans are being reviewed. You learn that the inventory policy at Waterloo is to hold one and one-half months' worth of sales (to avoid issues with transportation disruptions). The sales budget for next year is 660,000 units, spread evenly over the year. Because of an unexpected increase in demand, inventory at the end of this year is expected to be only 30,000 units. The capacity of the plant is 700,000 units annually.

Required

a. What production level next year will be required to meet the targets?
b. Are there any issues that you believe you should bring to the attention of the executive staff?
c. Do you have any suggestions for the resolution of these issues?

4. Estimate Production and Materials Requirements.

The Casings Plant of Wyoming Machines makes plastics shells for the company's calculators. (Each calculator requires one shell.) For each of the next two years, Wyoming expects to sell 160,000 calculators. The beginning finished goods inventory of shells at the Casings Plant is 20,000 units. However, the target ending finished goods inventory for each year is 5,000 units.

Each unit (shell) requires 6 ounces of plastic. At the beginning of the year, 60,000 ounces of plastic are in inventory. Management has set a target to have plastic on hand equal to two months' sales requirements. Sales and production take place evenly throughout the year.
Required

a. Compute the total targeted production of the finished product for the coming year.

b. Compute the required amount of plastic to be purchased for the coming year.

5. Estimate Purchases and Cash Disbursements.

Lakeside Components wishes to purchase parts in one month for sale in the next. On May 31, the company has 12,000 parts in stock, although sales for the next month (June) are estimated to total 12,900 parts. Total sales of parts are expected to be 10,500 in July and 11,100 in August.

Parts are purchased at a wholesale price of $15. The supplier has a financing arrangement by which Lakeside Components pays 60 percent of the purchase price in the month when the parts are delivered and 40 percent in the following month. Lakeside purchased 15,000 parts in May.

Required

a. Estimate purchases (in units) for June and July.

b. Estimate the cash required to make purchases in June and July.

6. Estimate Cash Disbursements.

Cascade, Ltd., a merchandising firm, is preparing its cash budget for March. The following information is available concerning its inventories:

Inventories at beginning of March $ 378,750
Estimated purchases for March 1,485,000
Estimated cost of goods sold for March 1,518,750
Estimated payments in March for purchases in February 371,250
Estimated payments in March for purchases prior to February 67,500
Estimated payments in March for purchases in March 60%

Required

What are the estimated cash disbursements in March?

7. Estimate Cash Collections.

Minot Corporation is preparing its cash budget for August. The following information is available concerning its accounts receivable:

Estimated credit sales for August $180,000
Actual credit sales for July $135,000
Estimated collections in August for credit sales in August 20%
Estimated collections in August for credit sales in July 75%
Estimated collections in August for credit sales prior to July $14,400
Estimated write-offs in August for uncollectible credit sales $7,200
Estimated provision for bad debts in August for credit sales in August $6,300

Required

What is the estimated amount of cash receipts from accounts receivable collections in August?

8. Estimate Cash Receipts.

Scare-2-B-U (S2BU) specializes in costumes for all occasions. The average price of each of its costumes is $240. For each occasion, S2BU receives a 20 percent deposit two months before the occasion, 50 percent the month before, and the remainder on the day the costume is delivered. Based on information at hand, managers at S2BU expect to make costumes for the following number of occasions during the coming months:

April 75
May 45
June 30
July 60
August 75
September 165

Required

a. What are the expected revenues for S2BU for each month, April through September? Revenues are recorded in the month of the occasion.

b. What are the expected cash receipts for each month, April through July?