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CVP Analysis

The document contains 4 problems related to strategic business analysis and cash budgeting for various companies. Problem 1 asks to prepare a cash budget and determine projected ending cash balances for Will Born Builders for the first 3 months of Year 2. Problem 2 asks to prepare a schedule of cash receipts and disbursements for Savannah Company for the month of June. Problem 3 asks to prepare a cash budget for Yummy Bakery for September and October. Problem 4 asks to explain what a production budget calculates and how it affects other operating and financial budgets.

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256 views

CVP Analysis

The document contains 4 problems related to strategic business analysis and cash budgeting for various companies. Problem 1 asks to prepare a cash budget and determine projected ending cash balances for Will Born Builders for the first 3 months of Year 2. Problem 2 asks to prepare a schedule of cash receipts and disbursements for Savannah Company for the month of June. Problem 3 asks to prepare a cash budget for Yummy Bakery for September and October. Problem 4 asks to explain what a production budget calculates and how it affects other operating and financial budgets.

Uploaded by

jhean dabatos
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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UNIVERSITY OF SAN JOSE – RECOLETOS

STRATEGIC BUSINESS ANALYSIS


SECOND SEMESTER AY 2019 – 2020
ASSIGNMENT NO. 2

PROBLEM I

Will born Builders in the building construction business. In Year 2,


it is expected that 40 percent of a month's sales will be collected
in cash, with the balance being collected the following month. Of the
purchases, 50 percent are paid the following month, 30 percent are
paid in two months, and the remaining 20 percent are paid during the
month of purchase. The sales force receives P
= 2,000 a month
base pay plus a 2 percent commission. Labor expenses are expected to
be P
= 4,000 a month. Other operating expenses are expected to run about
P
= 2,000 a month, including P
= 500 for depreciation. The ending
cash balance for Year 1 was P
= 4,500.

Sales Purchases
Year 1-Actual
November P
= 80,000 P
= 70,000
December 90,000 80,000
Year 2-Budgeted
January 70,000 70,000
February 90,000 60,000
March 30,000 50,000

Required:
a. Prepare a cash budget and determine the projected ending cash
balances for the first three months of Year 2.
b. Determine the months that the company would either borrow or
invest cash.

PROBLEM II

The following are forecasts of sales and purchases for Savannah


Company:

Sales Purchases
April P
= 80,000 P
= 30,000
May 90,000 40,000
June 85,000 30,000

All sales are on credit. Records show that 70 percent of the customers
pay the month of the sale, 20 percent pay the month after the sale,
and the remaining 10 percent pay the second month after the sale.
Purchases are all paid the following month at a 2 percent discount.
Cash disbursements for operating expenses in June were P = 5,000.
Required: Prepare a schedule of cash receipts and disbursements for
June.

PROBLEM III

Trish Morrow owns and operates Yummy Bakery which sells a wide variety
of cupcakes. She has compiled the following data and information in
order to put together a cash budget for September and October.

Budgeted sales for September are 65,000 cupcakes and 98,000 in


October. Each cupcake sells for P= 3.50.
On average 60 percent are cash sales and 40 percent are done on
account.
The Company expects to collect 75 percent of credit sales in the
month of the sale and 20 percent in the month after the sale.
All necessary raw materials are purchased on account. Purchases
are paid 85 percent in the month of the purchase and 15 percent
in the following month. Purchases for September are estimated
to be P
= 200,000 and P= 290,000 in October.
Monthly expenses include:
o Wages P= 10,000
o Rent P
= 4,000
o Utilities P= 3,500
o Insurance P= 2,500
o Advertising P= 2,290
Cash balance on September 1st was P
= 6,000.
The company has a policy to maintain a minimum cash balance of
P
= 5,000. If necessary the company will borrow to meet its short-
term needs. All borrowing is done at the beginning of the month
and all payments on principal and interest are made at the end
of the next month. The annual interest rate is 7%. The company
must borrow in multiples of P= 1,000.
August sales were 43,000 cupcakes and raw materials purchased
equal P
= 230,000.

Prepare a cash budget for September and October.

PROBLEM IV

You are the senior accountant at Cannon Manufacturing and have been
asked by the budget director to prepare the production budget for the
upcoming quarter. The budget director stated that they chose you to
prepare this budget because it is an important part of the overall
operating budget and financial budget. Explain what the production
budget calculates and how the production budget would affect other
operating budgets and the financial budget.

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