PART TWO

Cash flow and Financing

Before leaving, Joyce advised Royce that there is a need for better forecasting regarding the companys cash inflows and outflows. After a series of questions, you determined that (1) the company had not prepared a cash budget for several quarters and (2) is not up to date on its payables and receivables. You are going to prepare a forecasted income statement and a forecasted cash budget for the fourth quarter. Pertinent information needed has been collected and is outlined below.

Pertinent Information:

The business manager/accountant and Royce provided projections pertaining to the 2^nd quarter (April through June 2020) and other information outlined below:

1. Total sales 2^nd quarter: 2,500 3-piece set; Sales price is $900/3-piece set

2. Total Sales for the 3^rd quarter are projected to increase 8.5% above the 2^nd quarter total sales due to an aggressive marketing program that began June 1, 2020. Total quarter sales per month are expected to be realized as follows: 40% in July, 35% in August, and 25% in September. The sales budgets expressed in sales dollars and in the number of furniture sets sold are as follows:

PROJECTED	July	August	September	TOTAL QTR
SALES REVENUE
SALES 8.5% increase)	$610,313	$854,438	$976,500	$2,441,250
SALES: PRICE X QUANTITY	$610,313	$854,438	$976,500	$2,441,250

Number of Furniture Sets Sold	July	August	September	TOTAL QTR
Number of Furniture Sets Sold	678	949	1,085	2,713

3. Monthly Sales are classified as follows and realized in corresponding percentage: a. Cash sales.35% of total sales b. Credit sales.65% of total sales
4. Cost Classifications based on 2^nd quarter 2020 information:

Costs	Variable Costs	Fixed Costs
Raw Materials Used in Manufacturing (See corrected COGS Schedule in Part 1, Required #1)	$ ?
Actual 2nd Quarter Income Statement
Direct Labor	570,000
Overhead:
Rent-Factory		$ 250,000
Indirect Labor	84,000
Insurance Factory (66 2/3%)		30,000
Utility-Factory (50%)	20,000	9,000
Depreciation-factory building		91,000
General Administrative
Advertising		270,000
Selling & Administrative Wages and Salaries	90,000	135,000
Utility-Selling & Administrative (50%)	20,000	9,000
Insurance-Administrative (33 2/3%)		15,000
Depreciation-Administrative		135,000

6. All factory overhead and administrative expenses (except depreciation) are paid in cash in the month the cost is incurred.
7. Direct labor is paid at the end of the month
8. Raw material purchases are paid as follows: 60% in the month of the purchase, 20% the month after the purchase, and 20% in the second month following the purchase. The raw materials budget is as follows:

PROJECTED	July	August	September	TOTAL QTR
RAW MATERIAL PURCHASES
NEEDED FOR SALES	$186,349	$260,888	$298,158	$745,395
DESIRED ENDING	46,587	65,222	74,540
LESS: BEGINNING	(153,000)	(46,587)	(65,222)
PURCHASES	$79,936	$279,523	$307,475	$666,935

9. Additional monthly obligation paid in cash include:

1. Property taxes, due August 31, $2,950.
2. Employee payroll taxes due September 30 , $3,000,

You have determined that you are going to provide the following information to Joyce and Royce:

1. Compute the unit cost of goods sold using 2^nd quarter information and the corrected cost of goods sold statement you prepared in Part One
   • Units cost of goods sold:

1. • Cost of Goods Sold Statement:
2. Prepare a projected traditional multi-step income statement for the 3^rd quarter using information in a, above and the 2^nd quarter information on the table in 5 above (see the previous page). For proper formatting, see Exhibit 1 at the end of this document.
3. Prepare a schedule of projected cash collections from credit sales for each month of the 3^rd quarter. Relevant prior months credit sales: May credit sales, $368,720 June credit sales, $331,840

4. Prepare a schedule of projected cash payments for raw materials for each month of the 3^rd quarter. Relevant prior months credit (on account) purchases: May purchases on account, $344,100 June purchases on account, $309,720

5. Prepare a projected cash budget for the total 3^rd quarter. Your budget should include a monthly budget for each of the three months in the quarter. The cash balance on July 1, 2020 is $1,270,000.