ACC 2301 Project 3 Budget Exercise

Bobcat Printing makes custom t---shirts and other promotional products for student organizations and businesses. It is beginning its first year of operations and needs to plan for its first quarter of operations. They would like to maximize their profits, and understand that accurate budgeting can help achieve that goal. The budgets will be prepared based on the following information:

a. Sales are budgeted at $20,000 for Month 1, $25,000 for Month 2, and $27,000 for Month 3. All sales will be done on account. Company does not expect to have any cash sales.

b. Sales are collected 60% in the month of the sale, and 40% in the month following the sale.

c. Cost of Goods Sold is budgeted at 45% of Sales.

d. Monthly selling, general, and administrative expenses are as follows: donations are 10% of sales; advertising is 3% of sales; miscellaneous is 1% of sales; and rent is $5,000 per month. All SG&A expenses are paid in the month they are incurred.

e. Sincealloftheordersarecustommade,noinventoryiskeptonhandattheendofthe month.

f. Inventory purchases are paid in full in the month following the purchase.

g. Bobcat Printing is planning to purchase a building in Month 3 for $6,000 in cash.

h. Theywouldliketomaintainaminimumcashbalanceof$2,500attheendofeachmonth. Thecompanyhasanagreementwithalocalbankthatallowsthemtoborrow,withatotalline of credit of $20,000. The interest rate on these loans is 1% per month (12% annual). They would as far as able, repay the loan on the last day of the month when it has enough cash to pay the full balance and maintain an adequate ending cash balance.

i. Theownermakesadrawof$3,000everymonth.(Note:soleproprietorsand partnerships take owners draws, while stockholders receive dividends). Based upon the information provided, complete the operating budgets provided in the excel template, and answer the questions in TRACS. When making calculations always round up (for example: 33 7% = 2.31, round up to 3.00).

Check Figures: Gross Margin = $39,600 Total assets = $19,300 Ending Retained Earnings = $5,507

10. What is the total projected cash payments for SG&A expense? A. $15,000 B. $7,000 C. $25,080 D. $8,780

11. What is the projected beginning cash balance for Month 1? A. $0 B. $7,500 C. $300 D. $2,500

12. What is the projected ending cash balance for Month 1? A. $2,500 B. $1,100 C. $8,000 D. None of the above

13. Will Bobcat Printing need to borrow money in Month 1? A. Yes B. No

14. If you answered "Yes" that Bobcat Printing had to borrow money in the first month, how much money will it need to borrow to ensure it does not have a cash shortage? A. $500 B. $1,300 C. $1,800 D. Does not borrow money

15. If Bobcat Printing borrowed money in Month 1, what is the projected interest expense it will incur for borrowing the money? A. $130 B. Bobcat Printing will not have interest because it does not need to borrow money in Month 1. C. $13 D. $170 E. $14

16. Bobcat Printing will have a cash surplus in Month 2. A. True B. False

17. If Bobcat Printing has a projected cash surplus in Month 2, how much cash will it repay for borrowing on its line of credit? A. Bobcat Printing will not have a cash surplus, therefore it will need to borrow more money in Month 2. B. $1,100 C. $1,300 D. $1,800

18. Bobcat Printing will have cash shortage in Month 3. A. True B. False

19. Bobcat Printing will need to borrow money in Month 3. A. True B. False

20. How much will Bobcat Printing borrow in Month 3? A. Bobcat Printing will not have a projected cash shortage in Month 3, thus it will not borrow money B. $1,300 C. $1,643 D. $2,500