Assessment 4: Budget Preparation

Part A

	ACC5610 & ACC-FPX5610: Budgeting Planning and Control
	Assessment 4: Cash Budgeting Worksheet
	Part A																	Input values
	Spicer Corporation would like to prepare a cash budget in order to determine the company's financing needs for the
	upcoming year. The beginning cash balance is $161,250.																	Company name		Spicer Corporation
	The sales for the upcoming year is as follows:																	Year end		December 31, 20XX
	Spicer Corporation																	Spicer Corporation
	Sales Budget for the Year Ending December 31, 20XX																	Sales Budget for the Year Ending December 31, 20XX
				First Quarter			Second Quarter			Third Quarter			Fourth Quarter								1st Qtr	2nd Qtr	3rd Qtr	4th Qtr
	Projected number of units to be sold				1,525			1,675			1,775			1,550				Projected number of units to be sold			1,525	1,675	1,775	1,550
	Sales price per unit				$ 275			$ 275			$ 275			$ 275				Sales price per unit			$ 275	$ 275	$ 275	$ 275
	Projected revenue				$ 419,375			$ 460,625			$ 488,125			$ 426,250				Projected revenue			$ 419,375	$ 460,625	$ 488,125	$ 426,250
	All sales are on account. It is reported that 65% of the accounts receivable is collected in the quarter of the sale and																	Spicer Corporation
	35% in the quarter after the sale. The beginning accounts receivable is $142,000.																	Operating Expenses for the Year Ending December 31, 20XX
	All the purchases are made on account. The company pays 100 percent of the accounts payable each quarter. The																				1st Qtr	2nd Qtr	3rd Qtr	4th Qtr
	purchases are related to the inventory needed to sell each month. On an average, the inventory costs $195 per unit																	Salaries and wages			$ 55,625	$ 55,450	$ 54,675	$ 56,285
	to produce. It is estimated that enough inventory is purchased each quarter to cover the projected quarterly sales only.																	Advertising			1,200	1,500	900	2,000
	The beginning accounts payable is $0.																	Utilities			2,700	2,700	2,700	2,700
																		Rent			6,000	6,000	6,000	6,000
	Additional quarterly expenses include the following:																	Total			$ 65,525	$ 65,650	$ 64,275	$ 66,985
	Spicer Corporation
	Operating Expenses for the Year Ending December 31, 20XX																	Beginning cash balance				$161,250
																		Beginning accounts receivable balance				$142,000
				First Quarter			Second Quarter			Third Quarter			Fourth Quarter					% of accounts receivables collected in the				65%
	Salaries and wages				$ 55,625			$ 55,450			$ 54,675			$ 56,285				quarter of the sale
	Advertising				1,200			1,500			900			2,000				% of accounts receivables collected in the				35%
	Utilities				2,700			2,700			2,700			2,700				quarter after the sale
	Rent				6,000			6,000			6,000			6,000				Inventory cost per unit				$195
	Total				$ 65,525			$ 65,650			$ 64,275			$ 66,985				Note payable				$165,000
																		Annual interest rate on note payable				6%
	On the balance sheet, Spicer Corporation reports a note payable of $165,000. The principal plus interest is due on																	Cost of new machine				$50,000
	April 30. Until then, interest payments are made each month. The note has an annual interest rate of 6%.																	Minimum cash balance				$50,000
																		Line of credit borrowings/repayment				$10,000
	It is projected that in October of the current year, Spicer Corporation will need to purchase a new machine in order to																	Minimum surplus for repayment of line of credit				$5,000
	replace an outdated machine. The new machine will cost $50,000. The purchase is expected to be made with cash.																	Annual interest rate on line of credit				4%
																		Amount of line of credit (in millions of dollars)				$1
	Spicer Corporation currently has a line of credit of $1 million that can be used to cover any deficiencies. The line of credit																	Month in which new machine is purchased				October
	has a 4% annual interest rate. Interest payments must be made at the end of the quarter when there is a balance																	Interest due date				30-Apr
	outstanding. Borrowings must be made in increments of $10,000. It is a standard practice that the line of credit is paid
	when there is a surplus of the minimum cash balance in increments of $5,000.
	Part A: Complete the following.
	Assume that the management wants to maintain a minimum cash balance of $50,000. Prepare a cash budget for
	Spicer Corporation for the upcoming year, including a cash receipts schedule.
	Spicer Corporation
	Cash Budget for the Year Ending December 31, 20XX
				Jan-Mar			Apr-June			Jul-Sept			Oct-Dec
				First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	Spicer Corporation
	Budgeted Accounts Receivables and Cash Collections From Customers for the Year Ending December 31, 20XX
				First Quarter			Second Quarter			Third Quarter			Fourth Quarter

Part B

	Part B
	Part B: Complete the following.
	After completing Spicer's cash budget, use the memo template in Course Resources to draft a memo to management explaining the general purpose of a cash budget and its relationship to operational goals. As part of the memo, identify at least 3 key aspects of the current cash budget that management should note. For each key aspect, be sure to discuss how the overall cash budget will be impacted if there is a change in the expectation.