Reference no: EM13583302
Finnagan Company has budgeted sales revenues as follows:
Credit sales May $140,000
June 100,000
July 150,000
August 120,000
Past experience indicates that 80% of the credit sales will be collected in the month of sale, 15% will be collected in the first month following the sale and 5% in the second month following the sale. Purchases of inventory are all on credit and 32% is paid in the month of purchase and 68% in the month following purchase. Budgeted inventory purchases are:
May $100,000
June 90,000
July 80,000
August 60,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $19,000 each month, (b) dividends of $42,000 will be paid in July, and (c) purchase of a truck in August for $30,000 cash.
The company wishes to maintain a minimum cash balance of $40,000 at the end of each month. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $40,000. If money is borrowed, ignore interest
INSTRUCTIONS
a) Prepare separate schedules for (1) expected collections from customers and
(2) expected payments for purchases of inventory.
b) Prepare a cash budget for the months of July and August.
5. The Appliance Division of Malone Manufacturing Company reported the
following results for 2014:
Sales .......................... $6,000,000
Variable costs .................. 3,200,000
Controllable fixed costs ........ 2,000,000
Average operating assets ........ 5,000,000
Management is considering the following independent alternative courses of action in 2015 in order to maximize the return on investment for the division.
1) Reduce controllable fixed costs by 10% with no change in sales or variable costs.
2) Reduce average operating assets by 15% with no change in controllable
margin.
3) Increase sales 10% with no change in the contribution margin percentage.
INSTRUCTIONS
a) Compute the return on investment for 2014.
b) Compute the expected return on investment for each of the alternative courses of action.