2. Loblaw Manufacturing has asked you to create a cash budget in order to deter- mine...

 

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2. Loblaw Manufacturing has asked you to create a cash budget in order to deter- mine its borrowing needs for the June to October period. You have gathered the following information. Month Sales Other Payments June 2021 $489,125 $227,500 July 403,812 213,281 August 344,093 199,062 September 264,468 142,188 October 216,125 127,750 November 230,343 April and May sales were $327,031 and $383,906, respectively. The firm collects 20% of its sales during the month, 65% the following month, and 15% two months after the sale. Each month it purchases inventory equal to 55% of the next month's expected sales. The company pays for 40% of its inventory purchases in the same month and 60% in the following month. However, the firm's suppliers give it a 2% discount if it pays during the same month as the purchase. A minimum cash bal- ance of $25,000 must be maintained each month, and the firm pays 4% annually for short-term borrowing from its bank. a. Create a cash budget for June to October 2021. The cash budget should account for short-term borrowing and payback of outstanding loans as well as the interest expense. The firm ended May with a $30,000 unadjusted cash balance. b. Bob Loblaw, the president, is considering stretching out its inventory pay- ments. He believes that it may be less expensive to borrow from suppliers than from the bank. He has asked you to use the Scenario Manager to see what the total interest cost for this time period would be if the company paid for 0%, 10%, 30%, or 40% of its inventory purchases in the same month. The remainder would be paid in the following month. Create a scenario summary, and describe whether the results support Bob's beliefs. 2. Loblaw Manufacturing has asked you to create a cash budget in order to deter- mine its borrowing needs for the June to October period. You have gathered the following information. Month Sales Other Payments June 2021 $489,125 $227,500 July 403,812 213,281 August 344,093 199,062 September 264,468 142,188 October 216,125 127,750 November 230,343 April and May sales were $327,031 and $383,906, respectively. The firm collects 20% of its sales during the month, 65% the following month, and 15% two months after the sale. Each month it purchases inventory equal to 55% of the next month's expected sales. The company pays for 40% of its inventory purchases in the same month and 60% in the following month. However, the firm's suppliers give it a 2% discount if it pays during the same month as the purchase. A minimum cash bal- ance of $25,000 must be maintained each month, and the firm pays 4% annually for short-term borrowing from its bank. a. Create a cash budget for June to October 2021. The cash budget should account for short-term borrowing and payback of outstanding loans as well as the interest expense. The firm ended May with a $30,000 unadjusted cash balance. b. Bob Loblaw, the president, is considering stretching out its inventory pay- ments. He believes that it may be less expensive to borrow from suppliers than from the bank. He has asked you to use the Scenario Manager to see what the total interest cost for this time period would be if the company paid for 0%, 10%, 30%, or 40% of its inventory purchases in the same month. The remainder would be paid in the following month. Create a scenario summary, and describe whether the results support Bob's beliefs.

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To create a cash budget for June to October 2021 we need to project the cash inflows and outflows fo... View the full answer