CHAPTER 7COVERAGE OF LEARNING OBJECTIVESCHAPTER 7In troducti on to Budgets and Prepari ng the Master Budget7-A1 (60-90 mi n.)1. Exhibit IRAPIDBUY ELECTRONICS, INC.Mall of America StoreBudgeted In come Stateme ntFor the Three Mon ths Ending August 31,20X8Sales $300,000 Cost of goods sold (.62 x $300,000) 186,000 Gross profit $114,000Operati ng expe nses:Salaries, wages, commissi ons $60,000Other expe nses 12,000Depreciati on 1,500Rent, taxes and other fixed expe nses 33,000 106,500In come from operati ons. $ 7,500 In terest expe nse* 1,338 Net in come $ 6,162 See schedule g for calculation of interest.Exhibit IIRAPIDBUY ELECTRONICS, INC.Mall of America StoreCash BudgetFor the Three Mon ths Ending August 31,20X8June July August Beg inning cash bala nee $ 5,800 $ 5,600 $ 5,079 Minimum cash bala nee desired 5,000 5,000 5,000 (a) Available cash bala nee $ 800 $ 600 $ 79Cash receipts & disburseme nts:Collecti ons from customers(schedule b) $ 75,200 $121,400 $ 90,800Payme nts for mercha ndise(schedule d) (86,800) (49,600) (49,600) Fixtures (purchased in May) (11,000) - -Payme nts for operati ngexpe nses (schedule f) (44,600) (30,200) (30,200) (b) Net cash receipts & disburseme nts $(67,200) $ 41,600 $ 11,000Excess (deficie ncy) of cash beforefinancing (a + b) (66,400) 42,200 11,079Financing:Borrow ing, at beg inning of period $ 67,000$ -$ -Repayme nt, at end of period - (41,000) (10,000) In terest, 10% per annum - (1,121)* (217)*(c) Total cash in crease (decrease)from financing $ 67,000 $(42,121) $(10,217)(d) Ending cash bala nee (begi nningbala nee + b + c) $ 5,600 $ 5,079 $ 5,862 See schedule gExhibit IIIRAPIDBUY ELECTRONICS, INC. Mall of America Store Budgeted Bala nee SheetAugust 31,20X8$72,000 $270,000 8,000 30,000$80,000 $300,000Desired purchases:Cash (Exhibit II) $ 5,862 Acco unts payable $ 37,200Acco unts receivable* 86,400 Notes payable16,000** Mercha ndise inven tory 37,200Total curre nt liabilities$ 53,200Total curre nt assets$129,462Net fixed assets:Own ers' equity:$33,600 less$102,200 plus netdepreciation of $1,500 32,100 in come of $6,162 108,362 Total assets$161,562Total equities$161,562*July sales, 20% x 90% x $80,000 $ 14,400August sales, 100% x 90% x $80,00072,000Acco unts receivable$86,400** See schedule gLiabilities and Owners EquityJuly August Total AssetsJuneSchedule a: Sales Budget Credit sales (90%) $126,000 Cash sales (10%)14,000 Total sales (to Exhibit I) $140,000Schedule b: Cash Collectio nsCash salesOn acco unts receivable from: April sales May sales June sales July salesTotal collections (to ExhibitJuneJuly $ 14,000$ 8,00010,800 50,400 12,600 100,800 $75,200 $121,400Schedule c: Purchases Budget May June August $ 8,00025,200 July August$72,000 8,00057,60062% x n ext mon th's sales $86,800 $49,600 $49,600 $37,200 Schedule d: Disburseme nts for Purchases June July August Last mon th's purchases (to Exhibit II) $86,800 $49,600 $49,600Other required items related to purchasesAccou nts payable, August 31,2008(62% x September sales - to Exhibit III) Cost ofgoods sold (to Exhibit I) $86,800 $49,600$37,200 $49,600Schedule e: Operati ng Expe nse BudgetJune July August Total Salaries, wages, commissi ons $28,000 $16,000 $16,000 $60,000 Other Variable expe nses 5,600 3,200 3,200 12,000 Fixed expe nses 11,000 11,000 11,000 33,000 Depreciatio n 500 500 500 1,500Total operati ng expe nses $45,100 $30,700 $30,700 $106,500Schedule f: Payme nts for Operati ng Expe nsesJune July August Variable expe nses $33,600 $19,200 $19,200 Fixed expe nses 11,000 11,000 11,000 Total payme nts for operat ing expe nses $44,600 $30,200 $30,200Schedule g: In terest calculatio nsJune July AugustBeg inning bala nee $67,000 $67,558 $26,000Mon thly in terest expe nse @ 10% 558 563 217 Ending bala nee before repayme nt $67,558 68,121 26,217Prin cipal repayme nt (fromstateme nt of receipts and disburseme nts) (41,000) (10,000)In terest payme nt (1,121) (217)Ending bala nee $26,000 $16,0002. This is an example of the classic short-term, self-liquidating loan.The n eed for such a loa n ofte n arises because of the seas onal n ature of a bus in ess. The basic source of cash is proceeds from sales to customers. In times of peak sales, there is a lag between the sale and the collecti on of the cash, yet the payroll and suppliers must be paid in cash right away. Whe n the cash is collected, it in tur n may be used to repay the loa n. The amount of the loa n and the tim ing of the repayment are heavily dependent on the credit terms that pertain to both the purchasing and selling functions of the business.7-B1 (60-120 min.) $ refers to Australia n dollars.1. See Exhibits I, II, and III and supporting schedules a, b, c, d.2. The cash budget and bala nee sheet clearly show the ben efits of moving to just-in-timepurchasing (though the transition would rarely be accomplished as easily as this example suggests). However, the company would be no better off if it left much of its capital tied up in cash -- it has merely substituted one asset for ano ther. At a minimum, the excess cash should be in an in terest beari ng acco unt -- the in terest earned or forgone is one of the costs of inven tory.Schedule c: Purchases BudgetSchedule a: Sales Budget Total sales (100% on credit) Schedule b: Cash Collectio ns 60% of curre nt mon th's sales30% of previous mon th's sales 10% of sec ond previous mon th's sales Total collect ionsJanuary February March $248,000 $280,000 $152,000$148,800 $168,000 $91,200 30,000 74,40084,000 10,000 10,000 24,800 $188,800 $252,400$200,000Schedule d: Disburseme nts for Purchases 100% of previous mon th's purchases March 31 acco unts payable$142,200 $- $131,800$76,000December January February MarchWALLABY KITECash BudgetFor the Three Mon ths En di ng March 31,20X2January February MarchCash bala nee, beg inning $ 20,000 $ 20,400 $138,767 Minimum cash bala nee desired 20,000 20,000 20,000 (a) Available cash bala nee 0 400 118,767 Cash receipts and disburseme nts:Collectio ns from customers (Schedule b)Payme nts for mercha ndise188,800 252,400 200,000(Schedule d) (142,200) - (131,800) Re nt (32,200) (1,000) (1,000) Wages and salaries (60,000) (60,000) (60,000) Miscella neous expe nses (10,000) (10,000) (10,000)Divide ndsPurchase of fixtures (6,000) -(12,000)(b) Net cash receipts & disburseme nts Excess(deficie ncy) of cash$ (61,600) $181,400 $ (14,800)before financing (a + b)Financing:$ (61,600) $181,800 $103,967Borrow ing, at beg inning of period $ 62,000$ -$ -Repayme nt, at end of period - (62,000)Simple in terest, 10% mon thly-(1,033)(c) Total cash in crease (decrease)from financing $ 62,000 $ (63,033)$ -(d) Cash bala nee, end (beg inningbala nee + c + b) $ 20,400 $138,767 $123,967WALLABY KITEBudgeted In come Stateme ntFor the Three Mon ths En di ng March 31,20X2Sales (Schedule a) $680,000 Cost of goods sold (Schedule c) 340,000Gross margin $340,000 Operati ng expe nses:Rent* $ 67,000Wages and salaries 180,000Depreciati on. 3,000In sura nee 1,500Miscella neous 30,000 281,500Net in come from operati ons $ 58,500 In terest expe nse 1,033 Net in come $ 57,467*(Ja nu ary-March sales less $4 0,000) x .10 plus 3 x $1,000Exhibit 山 WALLABY KITEBudgeted Bala nee SheetMarch 31,20X2AssetsCurre nt assets:Total liabilities and stockholders' equity. *February sales (.10 x $280,000) plus March sales (.40 x $152,000) $88,800 **Bala nee, December 31,20X1 $102,800 Add: Net in come 57,467 Total$160,267 Less: Divide nds paid 6,000 Bala nee, March 31,20X2$154,267Cash (Exhibit I) $123,967 Acco unts receivable*88,800 Mercha ndise inven tory (Schedule c) 24,000 Un expired in sura nee4,500Fixed assets, net: $50,000 + $12,000 - $3,000Total assetsLiabilities and Stockholders' EquityLiabilities:Acco unts payable (Schedule d) $76,000 Rent payable.64,000 Divide nds payable6,000$241,267 59,000 $300,267$146,000 154,267 $300,267Stockholders' equity**7-1 Budgeti ng 1) provides an opport unity for man agers to reevaluate existi ngactivities and evaluate possible new activities, 2) compels man agers to think ahead by formaliz ing their resp on sibilities for pla nning, 3) aids man agers in com muni cat ing objectives to un its and coordi nati ng acti ons across the orga ni zatio n, and 4) providesben chmarks to evaluate subseque nt performa nee.7-2 Budgeti ng is primarily atte ntio n direct ing because it helpsman agers to focus on operati ng or finan cial problems early eno ugh for effective pla nning or action.7-3 Strategic pla nning covers no specific time period, is quite gen eral, and ofte n is not built around finan cial stateme nts. Lon g-ra nge pla nning usually has a 5- or 10-year horiz on and con sists of finan cial statements without much detail. Budgeting usually has a horizon of one year or less, and consists of financial statements with much detail.7-4 Con ti nu ous budgets add a month (or quarter) in the future as themonth (or quarter) just en ded is dropped. Therefore, the con ti nu ous budget provides a con ti nu ally updated budget look ing twelve mon ths ahead. Whe n the new month (or quarter) is added, the budget for the rema in der of the curre nt year may also be revised. Whe n compa nies revise the budgets for the rema in der of the curre nt year, they usually compare subsequent results to the original budget (a fixed target) in addition to compari ng them to the latest revised budget.7-5 If the measures used to reward employees in the performa nee evaluation system are not aligned with the goals of the company, the incen tives from the evaluatio n system may lead employees to take actions that con flict with the in terests of the compa ny.7-6 Lower-level man agers bias their forecasts to create budgetary slack or padd ing. Upper-level man agers adjust for this bias in creati ng a revised budget. Therefore, lower-level man agers in troduce additi onal bias to compe nsate for the adjustme nt that will be made by upper-level man agers, and upper-level man agers in troduce additi onal adjustme nts for the additi onal bias. This cycle can quickly destroy the pote ntial ben efits of budgets.7-7 A man ager may make short-r un decisi ons to in crease profits that are not in the company ' s best long -run interests, such as offeringcustomers excessively favorable credit terms or cutt ing discretio nary expe nditures such as R&D and advertis ing, trad ing future sales for current profits. In the extreme, the manager might choose to falsely report in flated profits.7-8 First, by movi ng this year's sales into n ext year or movi ng n ext year's expenses into this year, the manager ensures a higher level of reported profit (and probably a higher bonus) n ext year. Second, by decreas ing this year's in come, the man ager avoids ratcheti ng up of performa nee expectati ons in sett ing the bonus target for the n ext year.7-9 Budgeted performa nee is better tha n past performa nee as a basisfor judg ing curre nt performa nee because the budget contains no hidde n in efficie ncies and can be foun ded on curre nt rather tha n past econo mic con diti ons.7-10 Budgets are especially importa nt in en vir onments that are rapidly cha nging. They force man agers to look forward and pla n for cha nge. Budgets force an alysis of the factors that are bringing about the cha nges.7-11 No. When budgeting in done correctly, it is an important aid to man agers. Man agers n eed time to pla n and coord in ate their various activities. Budget ing forces them to take time from the day-to-day problems and focus on Ion ger-term issues.7-12 The sales forecast is the start ing point for budgeti ng because all other operat ing activities of the compa ny are affected by the volume of sales.7-13 The sales forecast is in flue need by past patter ns of sales, estimates made by the sales force, gen eral econo mic eon diti ons, competitors' acti ons, cha nges in prices, market research studies, and advertis ing and sales promoti on pla ns.7-14 An operat ing budget is used as a guide for producti on and salesand it focuses on the in come stateme nt. A finan cial budget is used to eon trol the receipt and disburseme nt of funds and it focuses on the stateme nt of cash receipts and disburseme nts.Operati ng expe nses are costs charged to the in come stateme nt in a particular7-15period. Some operat ing expe nses may be associated with the sales of the period, and others may be costs of being in bus in ess for the period. Disburseme nts for these operat ing expe nses, that is, the cash payme nts for them, may come in a previous period (assets purchased in one period and depreciated over future periods) or a future period (wages accrued in a period but paid in the n ext period), as well as duri ng the period.7-16 A cash budget is an attempt to mon itor and regulate the flow of cash in optimum fashi on.7-17 Budgeti ng will be effective only if it is accepted by thosemanagers who are responsible for controlling costs. Since their performa nce will be measured aga inst the budget, they must be educated in the assumptions underlying the budget and convinced of its objectivity and releva nce.7-18 Both fun cti onal and activity-based master budgets begi n with the forecasted dema nd for products or services. However, whereas fun cti onal budgets the n determ ine the inven tory, materials, labor, and overhead budgets, the activity-based budget focuses on determ ining the dema nd for key activities. This dema nd is measured by the cost-driver un it for each activity. The n the budgeted resource con sumpti on rates are used to set the budgets for resources such as materials, labor, and overhead. The focus on activities and con sumpti on rates in activity-based budget ing is what man agers believe offers value from an operati onal con trol perspective.7-19 No. Finan cial pla nning models are mathematical stateme nts of the relationships in the organization among all the operating and financial activities and of other major in ternal and exter nal factors that may affect the financial results of decisions. But financial planning models are only as good as the assumpti ons and in puts used to build them.Man agers must un dersta nd the models to provide appropriate assumpti ons and in puts.If man agers do not un dersta nd budget ing, using finan cial pla nning models can result in GIGO (garbage in, garbage out).7-20 Sett ing up the master budget on a spreadsheet is time-c onsuming --the first time. However, if it is done properly, with maximum flexibility, the n the ease of subseque nt use probably will more tha n offset that in itial cost. Ultimately, though, the master budget system must meet the cost-be nefit test. Improved budget ing systems are only worthwhile if they offer net ben efits. Prepari ng and revis ing the master budget of a large compa ny just would not be feasible without the aid of a computer.7-21 Spreadsheets can be used to make a mathematical model of an organization. It may take much effort to create the model, but once it is in place it can be used over and over again with minimal effort. Such a model is especially useful for sen sitivity an alysis, which is the ask ing of "what if" questi ons.7-22 Budgets that are used primarily for limit ing spe nding provide incentives for “game playing. ” Accurate forecasts and estimates give way to strategies desig ned to avoid budget cuts or to justify in creased budgets. Budgets should have a much largerrole in the effective and efficie nt man ageme nt of an orga ni zatio n. A budget should be a decisi on tool. It helps managers project the results of their decisions, thereby aiding them in making the right decisions. It also provides a base for adapting to change. Anything that results in loss of budget accuracy will limit the decision usefulness of the budget.7-23 Accurate sales forecasts are esse ntial to budgeti ng. Sales personnel are often“closest to the action ” and therefore in the bestpositi on to make accurate forecasts. They are in direct con tact with customers, and often they are the first to notice trends. A central staff function, such as market research, can set parameters for forecasti ng and give some com mon ground rules. But usually it is importa nt to get sales pers onnel heavily invo Ived because they have information that no one else has. Most importantly, the more invoIved sales pers onnel are, the more committed they will be to achiev ing budgeted sales goals.7-24 The pla nning that comes through a good budget process is important to all segments of an organization. Segments with both reve nues and expe nses can show a budgeted profit. Other segme nts that have only expe nses, such as a research and developme nt departme nt, still have to plan their operations. It is important to predict the resources needed to meet the segment ' s objectives so that required resources canbe obta in ed. Budgeti ng provides a formal cha nnel for com muni cati on betwee n the segme nt and top man ageme nt about what activities the segme nt is to un dertake.7-25 A key to employee accepta nee of a budget is participati on. Budgets created with the active participati on of all affected employees are gen erally more effective tha n budgets imposed on subord in ates. If a budget is to help direct future activities, employees must accept the budget. Accepta nee means believ ing that the budget reflects a desired future path for the orga ni zati on. If a man ager has bee n a participa nt in determining the future path - that is, helped develop the budgethe or she is more likely to accept it as a desirable objective.7-26 (5 min.)1.a. Capital budget budget)b. Cash budgetc. Budgeted bala nee sheet orga ni zati on7-27 (10-15 mi n.) 2. Sales budget (or operat ing3.Con ti nu ous (rolling)4.Overall goals of theMusic Masters will be using cash un til the beg inning of 2010, at which time cash receipts will beg in to exceed cash disburseme nts. Therefore, the following amount of venture capital is needed to carry the firm to the begi nning of 2010:In itial capital inv estme ntFirst year cash outflow (12 x $35,000) Seco nd year cash outflow [12 x ($35,000,000)] Total $380,000420,00060,000$860,0003.En di ng in ve ntory, .60 x .25 x $950,000 Mercha ndisen eeded for curre nt mon th's sales,.60 x $800,000Total n eedsBeg inning inven tory, .60 x .25 x $800,000 RequiredPurchases4.Ending inven tory, .60 x .25 x n ext mon th's sales Mercha ndise n eeded for curre nt mon th's sales, .60540,000$142,500480,000622,500120,000$502,500July$135,000August$ 90,000 x sales 570,0007-28 (10-15 mi n.)1.Cost + (.25 x Cost) = Sales1.25 x Cost = $2,100,000Cost = $1,680,000e the familiar ide ntity, Begi nning Inven tory plus Purchasesequals Cost of Goods Sold plus Ending Inven tory. To compute required purchases,compute the inven tory n eeded (Cost of Goods Sold plus Ending Inventory) and thensubtract the amount that will come from Beg inning Inven tory:July Mercha ndise PurchasesCost of goods sold ($2,200,000Add: Target ending inven tory1.25) $1,760,000.30 x ($2,360,000 1.25) 566,400Cost of goods n eeded Less:Beg inning inven tory$2,326,400.30 x ($2,200,000 1.25) 528,000Required Purchases $1,798,4007-29 (25-30 mi n.)1. July collect ions in clude:May sales billed Ju ne 5, .18 x .5 x $700,000 $ 63,000June sales billed June 20, .18 x .5 x $80 0,000 72,000June sales billed July 5, .80 x .5 x $800,000 x .97 310,400July sales billed July 20, .80 x .5 x $950,000 x .97 368,600Total $814,000 2..60 x .25 x $800,000 = $120,000Total needs705,000630,000Begi nning inven tory, .60 x .25 x curre nt mon th's sales 142,500135,000Required Purchases$562,500$495,000 Payme nts, 1/2 of curre nt purchases, 1/2 of preced ingmon th's purchases, .5 x $562,500 + .5 x $495,000$528,7507-30(15 mi n.) This illustrati on is straightforward and follows thechapter example closely. All amounts are in dollars.JuneJulyAugust Sales budgetCredit sales, 30% 129,000 132,000 150,000 Cash sales, 70% 301,000 308,000 350,000 Total sales, 100%430,000440,000500,000Cash collecti ons budgetCash sales this month301,000 308,000 350,000 100% of last mon th's credit sales 105,000 129,000 132,000 Total collecti ons406,000437,000482,0007-31 (15-25 min.) This problem is slightly more complex than 7-30.All amounts are in thousa nds of Japa nese yen.7-32 (10-15 min.) Collectio ns from:January sales: $360,000 x 12%$ 43,200February sales:$400,000 x 10% x 99% 39,600 February sales: $400,000x 25%100,000Sales budget Credit sales, 80% Cash sales, 20% Total salesCash collecti ons budget Cash sales this month50% of this mon th's credit sales 40% of last mon th's credit sales10% of n ext-to-last mon th's credit salesTotal collecti ons JanuaryFebruary March 160,000 176,000 192,000 40,000 44,000 48,000 200,000 220,000 240,000 40,000 44,000 48,000 80,000 88,000 96,000 62,40064,000 70,400 18,00015,600 16,000 200,400211,600230,400March sales:Total cash collect ions $450,000 X 50% X 98% 220,500$403,3007-33 (15-20 min.) This is straightforward and closely follows the illustration in the chapter. All amounts are in dollars. Some students n eed to be rem in ded that mercha ndise inven tories are carried at cost, not at selli ng prices.RENOVATION LIGHTING SUPPLYPurchases and Disburseme nts BudgetsPurchases budgetEnding inven toryCost of goods sold, 60% of sales Total n eededBeg inning inven toryPurchasesJune July220,000 200,000264,000 210,000484,000 410,000275,000 220,000209,000 190,000August240,000180,000420,000200,000220,000Disburseme nts for purchases10% of this mon th's purchases 80% of last mon th's purchases 10% of sec on d-last mon th's purchases20,900 19,000144,000* 167,20025,000** 18,000189,900 204,20022,000152,00020.900194.9007-34 (20-25 mi n.) This is straightforward and follows theillustration in the chapter closely, except for requirement 1. All amounts are in euros. X (.6 X 300,000= 210,000 - [15,000 + .9(180,000)]=210,000 - 177,000 =33,000LINKENHEIM GMBHPurchases and Disburseme nts BudgetsDisburseme nts for purchases80% of last mon th's purchases 20% of this mon th's purchases Disburseme nts for purchases*lnven tory targets, end of mon th: June: 15,000 + .9 X(0.6 X290,000)= =15,000 + .9 X(174,000) 171,600July:15,000 + .9X(0.6 X340,000)= =15,000 + .9 X(204,000) 198,600August:15,000 + .9X (0.6 X 400,000)= =15,000 + .9 X (240,000)231,0001.210,000 - [15,000 + .92.Purchases budget Ending inven tory*Cost of goods sold, 60% of sales Total n eeded Beg inning inven tory PurchasesJuneJulyAugust171,600 198,600 231,000 180,000 174,000 204,000 351,600 372,600 435,000 210,000 171,600198,600 141,600 201,000236,400120,000 113,280 160,800 28.320 40,200 47,280148.320153,480 208,0807-35(20 mi n.) This is a straightforward exercise.CARLSON COMPANY Cash Budget For the Month Ended June 30, 20X4(in thousa nds)*$24,000 = 20% of May sales, 10% of which or half the remai nder will be collected in June. All of April's remaining sales will be collected in June.Begi nning Cash, May 31,20X4 Cash Receipts:Collect ions from customers from:June sales (.80 x $290) May sales (.5 x 24)* April salesTotal cash available duri ng June Cash Disburseme nts:On acco unts payable of May 31 On June purchases, .25 x $192 Wages Utilities Advertis ing Office expe nses Ending Cash, June 30, 20X4$232 12 20$145 48 36 5 10 4$ 15264 $279248 $ 317-36 (20-25 mi n.) The collecti ons from March sales are a bit tricky.Note that the receivable bala nee from March sales at March 31 is $450,000; therefore, four fifths (because 40/50 will be collected in April a nd 10/50 will be collected in May) will be received in April.MERRILL NEWS AND GIFTSBudgeted Stateme nt of Cash Receipts and Disburseme ntsFor the Mon th En di ng April 30, 20X7Cash bala nee, March 31,20X7Add receipts, collect ions from customers:From April sales, 1/2 x $1,000 ,000 $500,000 From March sales, 4/5 x $450,000 360,000 From February sales 80,000 Total cash availableLess disburseme nts:Mercha ndise purchases, $450,000 x 40% $180,000 Payme nt on acco unts payable 460,000 Payrolls 90,000 In sura nee premium 1,500 Other expe nses 45,000 Repayme nt of loa n and in terest 97,200 Cash bala nee, April 30, 20X7$ 100,000940,000 $1,040,000873,700 $ 166,3007-37 (40-60 mi n.)BOTANICA COMPANYStateme nt of Estimated Cash Receipts and Disburseme ntsFor the Mon th En ded October 31,20X7Cash bala nee, September 30, 20X7Receipts, eolleeti ons of receivables (Schedule 1) Total cash availableLess disburseme nts:Mercha ndise purchases (Schedule 2)Variable expe nses (Schedule 3)Fixed expe nses (Schedule 3)Cash bala nee, October 31,20X7Schedule 1, Collect ions of Acco unts Receivable: $ 4,800 29,340 $34,140Sales From August sales $12,000From September sales $36,000From October sales $30,000Total October collecti onsSchedule 2, Payme nts for Mercha ndise:Target ending inven toryGoods soldTotal n eedsBeg inning inven toryPurchasesPayme nts, 2/3 x $15,600 October purchases Accounts payable, end of September,1/3 x $1 9,800 purchasesTotal payme nts in October* (12/20) x .5 x 30,000 = $9,000; (12/20) $10,800;(12/20) x .5 x 22,000 = $6,600$17,0003,125900 21,025$13,115Collected in OctoberPercent Amount6% $ 72030% 10,80060% x 99% 17,820$29,340September October$ 9,000* $ 6,600*21,600 18,000$30,600 $24,60010,800* 9,000*$19,800 $15,600$10,4006,600$17,000x .5 x 36,000 =Schedule 3, Selli ng and Gen eral Admi nistrative Expe nses:7-38 (30 - 40 mi n.) This problem would be solved most easily on aspreadsheet. 1. The Ritz-Carlton ' s monthly cash budget is shown on Exhibit 7the two followi ng pages. 2. In crease in reve nu es:6 mo. x .05 x 300 rooms x $290 x 30 days x .98 collected In crease in costs:6 mo. x .05 x 300 rooms x $30 x 30 days In crease in profitTotal selli ng and gen eral admi nistrative expe nses Less fixed expe nsesTotal variable expe nses for year (vary with sales) October variable expe nses:$37,500 x (October sales Year's sales)=$37,500 x ($30,000$360,000)$61,500 24,000 $37,500Total fixed expe nsesLess depreciation (no current cash outlay) Total cash required for fixed expe nses for year October cash required for fixed expe nses: $10,800 12$ 3,125 $24,000 13,200 $10,800$ 900-38 on$767,34081,000 $686,340。
