You have recently been hired by Piepkorn Manufacturing to work in the newly established treasury department. Piepkorn Manufacturing is a small company that produces cardboard boxes in a variety of sizes for different purchaser. Gary Piepkorn, the owner off the company, works primarily in the sales and production areas of the company. Currently, the company puts all receivables in one shoebox and all payables in another shoebox. Because of the disorganized system, the finance area needs work, and that is what you?ve been brought in to do.

The company currently has cash balance $240,000, and it plans to purchase new box-folding machinery in the fourth quarter at a cost of $45,000. The machinery will be purchased with cash because of a discount offered. The company?s policy is to maintain a minimum cash balance of $125,000. All sales and purchases are made on credit.

Gary Piepkorn has projected the following gross sales for each of the next four quarters:

In addition, gross sales for the first quarter of next year are projected at $1,290,000. Piepkorn currently has an accounts receivable period of 53 days and an account receivable balance $630,000. Twenty percent of the accounts receivable balance is from a company that has just entered bankruptcy and it is likely this portion of the accounts receivable will never be collected.

Piepkorn typically orders 50 percent of next quarter?s projects gross sales in the current quarter, and suppliers are typically paid in 42 days. Wages, taxes, and other costs run about 30 percent of gross sale. The company has a quarterly interest payment of $130,000 on its long-term debt.

The company uses a local bank for its short-term financial needs. It pays 1.5% per quarter in all short-term borrowing and maintains a money market account that pays percent per quarter on all short-term deposits.

Gary has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based changes in several inputs.

Use the numbers given to complete the cash budget and short-term financial plan.

Transcribed Image Text:

Gross sales Q1 Q2 $1,240,000 $1,310,000 Q3 Q4 $1,370,000 $1,450,000 Gross sales Q1 Q2 $1,240,000 $1,310,000 Q3 Q4 $1,370,000 $1,450,000

Answer rating: 100% (QA)

Table 1 Sample template of the cash budget for Piepkorn manufacturing company Q1 Q2 Q3 Q4 Target cas... View the full answer