INFORMATION FOR HEDRON, INC.
Hedron, Inc. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for Hedron, so Hedron has no manufacturing related costs.
In Nov of 2019, each lawn chair costs Hedron $4 per unit. Per an existing contract, the cost of each chair is scheduled to increase by 5% on May 1, 2020. In addition, because of increasing costs of plastic webbing, the cost is anticipated to increase by an additional 5% on Sept 1, 2020.
Hedron sells each chair for $10 per unit.
Projected Sales units:
To offset increasing costs of the chairs, the company plans to raise the sales price to $11.25 per unit beginning Sept 1, 2020. The sales forecast (i.e., estimated sales in units) takes this price increase into account.
Monthly sales are 30% cash sales, 70% credit sales. 30% of credit sales are collected in the month of sale, 50% are collected the following month, and 16% are collected the 2nd month after sale. The remaining receivables are deemed uncollectible at the end of the 2nd month after sale. Bad debts are written off in the month the debt is deemed uncollectible
The firm’s policy regarding inventory is to maintain their stock (i.e. have in ending inventory) at 40% of the forecasted sales in units for the next month. Hedron uses the first-in, first-out (FIFO) method in accounting for inventories.
40% of the inventory purchases are paid in the month of purchase with the remaining 60% paid the following month.
A Note payment of $50,000 for equipment previously purchased is due in January and another Note payment of $30,000 is due in February. There are no Note Payables at the end of 2020.
Monthly Cash expenses are paid when incurred
Salary and Wage Exp
Sales Commissions Exp
7% of sales revenue
Gen & Admin Variable Exp
6% of sales revenue
Gen & Admin Fixed Exp
Gen & Admin Depreciation Exp
(Cash expenses are paid when incurred)
The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. (Ignore interest on the loans, but minimize the amount borrowed and pay off any loans as soon as possible.)
Dividends of $12,000 are paid in July.
Balance Sheet balances as of December 31, 2019:
Buildings and Equipment
Cash Collections Budget
Total Cash Receipts for January: $ 104,200
Total Cash Receipts, Total 2020: $ 1,835,333
Bad Debt Exp for January: $ 3,150
Bad Debt Exp, Total 2020: $ 51,951
Cost of Purchases for Dec 2020: $ 52,479
Operating Expense Budget
Cash disbursements for Op Exp for Dec $ 55,281
Total cash available, Summary $ 1,850,333
Total Cash Disbursements, Summary: $ 1,549,658
Ending Cash Balance for Dec: $ 300,676
Budgeted Income Statement
Gross Profit, Total: $ 1,134,388
Cost of Goods Sold Total $ 768,112
Net Income, Total: $ 103,113
Budgeted Balance Sheet
Total Assets Dec 2020: $ 645,411
I do not understand how to calculated the values for the Cash Budget table. Please explain what values need to be combined to get the final answers. Thanks! K L M N O P Q R Hedro Inc. Cash Budget For Year Ending Dec 31, 2020 Apr 20 1 5 000 $ May 20 15,000 Jul 20 15,000 $ Aug 20 15,000 $ Sep 20 15000 $ Oct 20 15000 Nov 20 15000 5 Dec 20 15 0005 15 OUD 5 15 000 5 15 cou 5 $ 15,000 $ Summary 180 000 Jan 1st Halance Add collections from G Toll sh.alle MA 104 106 100 109 Cash balance beginnng Add collections from custom Toll Chile Less disbursements Cash disbursements for merchandise purchases Cash Disbursements for Operating Expenses Nate Payments Equipment Credenca Total cash dsbursements EXCARS OF ACRIPT over disbursements Financing Borrowing ole Repayments-nute Cash balance, andng 112 113 115 110 Hisdran Inc. Inventory Data COGS Calculation using FIFO Cast Assumption 119 Beg mentory Begleitory Purchase Purchase COG Coos lentory mentory 133