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Cash
Budget
Foster Company
Sales Budget for 2007
Quarter
1st 2nd
3rd 4th Year
Total Sales
Revenue
ABC COMPANY - COLLECTIONS
BUDGET
SCHEDULE OF EXPECTED CASH COLLECTIONS
– when do we expect to receive cash for the sales we
have made?
Cash collection information:
1. Of all sales 80% are on credit
2. 70% of credit sales are collected in the quarter in
which the sale is made and 30% are collected in the
following quarter
3. Accounts receivable is estimated to be $60,000 on
December 31, 2006; the company expects to collect
the outstanding receivables in the first quarter of
2007
FOSTER COMPANY - COLLECTIONS
BUDGET
Foster Company
Schedule of Expected Cash Collections for 2007
Quarter Expected Credit Cash Collections By Quarter
st
Sales Sales 1 2nd 3rd 4th
A/R
1st
2nd
3rd
4th
Units Produced
Expected sales
(in units)
Add desired units
in ending finished
goods inventory
FOH Rate =
FOSTER COMPANY – BUDGETED COSTS
Foster Company
Budgeted (standard) cost for one cashmere sweater in 2007
Direct Materials
Direct Labor
Variable overhead
Fixed overhead
Materials Purchased
Ending Inventory
Less beginning DM
inventory
DM to be
purchased
Cost per pound
Total cost of DM
purchases
FOSTER COMPANY – CASH
DISBURSEMENTS
SCHEDULE OF EXPECTED CASH
DISBURSEMENTS FOR MATERIALS –
shows the amount and timing of cash payments
the firm has to make to its suppliers.
Cash Disbursement Information:
1. Direct materials are all purchased on credit
2. Foster usually pays 60% of its purchases in the
same quarter as the purchase and the rest is
paid in the following quarter
3. The company expects to have an accounts
payable balance of $40,000 on December 31,
2002; and all outstanding payables are expected
to be paid in the first quarter of 2007
FOSTER COMPANY – CASH
DISBURSEMENTS
Foster Company
Schedule Of Expected Cash Disbursements For Materials, 2007
Quarter of Total Quarter in which cash is paid
st
purchases purchases 1 2nd 3rd 4th
A/P, beginning
1st quarter
2nd quarter
3rd quarter
4th quarter
Total cash
disbursements
FOSTER COMPANY – DL BUDGET
DIRECT LABOR BUDGET – provides an
estimate of the amount and cost of direct labor
time required to fulfill the budgeted production
Each cashmere sweater requires 1 hour of skilled
labor. Foster pays its skilled workers $20/hour.
FOSTER COMPANY – DL BUDGET
Foster Company
Direct Labor Budget for 2007
Quarter
st nd
1 2 3rd 4th Year
Units to be
produced
Total DL hours
needed for
production
Total cost of DL
FOSTER COMPANY – MOH BUDGET
MANUFACTURING OVERHEAD BUDGET - provides an
estimate of the cost of variable and fixed overhead required to
fulfill the budgeted production
Variable overhead rate is $5 per machine hour (costs of indirect
materials, utilities, and indirect labor combined). Foster
expects to use 2 MHs per unit.
Fixed overhead cost is $185,600 ($69,600 in machine
depreciation, $60,000 in factory supervisor salary, and
$56,000 in factory rent and insurance combined). Fixed
overhead is allocated on the basis of machine hours at a
predetermined OH rate of $20/MH.
Units to be
produced
Total VOH
costs
Total cash
FOH costs
Total cash OH
Total non-cash
FOH costs
Total OH costs
FOSTER COMPANY – S&A BUDGET
SELLING AND ADMINISTRATIVE EXPENSE BUDGET – Estimates of all costs
necessary to attain the sales levels in the sales budget and to deliver the goods to
the customer (selling expenses) and estimates of all administrative activities
(administrative expenses)
Variable selling and administrative expenses for each cashmere sweater are 10%
sales commission and an average shipping costs of $10 per sweater.
Advertising $60,000
Executive salaries $120,000
Insurance $40,000
Depreciation $20,000
Total fixed S&A $240,000
Units to be sold
CASH BUDGET
Cash balance, beginning
Add Cash receipts:
Cash sales
Collections on credit sales
Receipts of dividends and/or interest
Receipts from sales of equipment and/or other assets
Total cash available before financing
Less Cash disbursements:
Payments for direct materials
Payments for direct labor
Payments for manufacturing overhead
Payments for selling and administrative expenses
Payments for equipment purchases, dividends, and income taxes
Total cash disbursements
Excess (deficiency) of cash available over disbursements
Financing:
Add New borrowings
Less Interest payments and/or repayments of principal
Total financing
Cash balance, ending
FOSTER COMPANY – CASH BUDGET
The Foster Company has provided the following information for preparing a cash budget:
Expected cash balance on 1/1/2007 = $40,000 (1)
Information on cash receipts:
80% of all sales are on credit. 70% of credit sales are collected in the quarter in which the
sale is made and 30% are collected in the following quarter. A/R is estimated to be
$60,000 on 12/31/2006; the company expects to collect the outstanding A/R in the 1st
quarter of 2007.
In the 1st quarter of 2007, Foster expects to sell marketable securities that are valued at
$10,000. (2)
Information on cash disbursements:
Direct materials are all purchased on credit. Foster usually pays 60% of its purchases in
the same quarter as the purchase and the rest is paid in the following quarter. The
company expects to have an accounts payable balance of $40,000 on December 31, 2006;
and all outstanding payables are expected to be paid in the first quarter of 2007.
All employees – direct laborers, supervisors, S&A staff – are all paid in the quarter in
which their services are used.
Overhead costs and S&A expenses are paid in the quarter in which they are incurred
On April 1, 2007, the company plans to spend $90,000 to buy a high-end knitting
machine, which has a 10-year useful life. (3)
Information on financing:
The company expects to obtain a loan for the full amount of the knitting machine on April
1, 2007. No principal will be repaid during the year; interest at an annual rate of 10% is
due quarterly. The company does not expect to issue stock or pay any dividends in 2007.
(4)
FOSTER COMPANY – CASH BUDGET
Foster Company
Cash Budget for 2007
Quarter
1st 2nd 3rd 4th
CASH – BEGINNING $119,970
Cash receipts:
Cash sales
Collections on credit sales
Sale of securities
TOTAL CASH RECEIPTS
TOTAL CASH AVAILABLE
Cash disbursements:
Payments for DM
Payments for DL
Payments for OH
Payments for S&A
Purchase of machine
TOTAL CASH DISBURSED
Excess (deficiency) of cash
available over disbursements
FOSTER COMPANY – CASH BUDGET
Excess (deficiency) of
cash available over
disbursements
Excess (deficiency) of
cash available over
disbursements
Financing:
Borrowings
Interest payments
TOTAL FINANCING
CASH - ENDING
FOSTER COMPANY – BUDGETED
INCOME STATEMENT
BUDGETED INCOME STATEMENT – projection
of net income the company expects to earn as a
result of all the budgeted activities
Foster Company
Budgeted Income Statement for 2007
Sales
COGS
Gross Margin
S&A expense
Interest expense
Net income
FOSTER COMPANY – BUDGET
BALANCE SHEET
BUDGETED BALANCE SHEET – projection of the company’s assets, liabilities, and
shareholders’ equity at the end of the budget period
The Foster Inc.’s balance sheet for 12/31/2006 includes the following items:
Plant. Property, and equipment $560,000 Common stock $450,000
Accumulated depreciation $77,150 Retained earnings $112,865
FOSTER COMPANY – BUDGET
BALANCE SHEET
Foster Company
Budgeted Balance Sheet for 2007
TOTAL ASSETS
Cash
Accounts receivable
Total Assets
FOSTER COMPANY – BUDGET
BALANCE SHEET
Accounts payable
Common stock
Retained earnings