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Cash Budget for Pine Mulch Company

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The attached problem describes the financials for Pine Mulch Company at the end of the first quarter, with sales ending in March. Use only the information provided to complete the cash budget for the 3 months in the 2nd quarter. The first table provides the forecasted sales and expenses for the 2nd quarter. The second table is the cash budget with partially completed line items.

Discuss the approach and method that you will utilize to address this scenario. Once the cash budget has been developed, discuss whether there is a need to obtain any short term financing needed for the 2nd quarter, and planning for the 3rd quarter.

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Solution Preview

Please see the attached file.

First find the total collections of each month of the quarter:

Credit sales and Collections
Second Quarter, 20X5
March April May June

Credit sales $180,000 $160,000 $140,000 $192,000

Collections of current ...

Solution Summary

The solution explains how to prepare a cash budget.

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Finance problems: inventory, AR credit policies, cash budgets, Lockbox

See attachment.

I need help with problems 26.7,26.14,27.8 and 28.10.

26.7 Indicate whether the following company actions increase, decrease, or cause no change to
the cash cycle and the operating cycle.
a. The use of discounts offered by suppliers is decreased.
b. More finished goods are being produced for orders instead of for inventory.
c. A greater percentage of raw materials purchases is paid for with cash.
d. The terms of discounts offered to customers are made more favorable for the customers.
e. A larger than usual amount of raw materials is purchased as a result of a price decline.
f. An increased number of customers pay with cash instead of credit.

26.14 Below are some important figures from the budget of Pine Mulch Company for the second quarter of 20X2.

27.8 Garden Groves, Inc., a Florida-based company, has determined that a majority of its customers are located in the New York City area. Therefore, it is considering using a lockbox system offered by a bank located in New York. The bank has estimated that use of the system will reduce collection float by three days. Based on the following information, should the lockbox system be adopted?

Average number of payments per day: 150
Average value of payment: $15,000
Fixed annual lockbox fee: $80,000
Variable lockbox fee: $0.50/transaction
Annual interest rate on money-market securities: 7.5 percent

28.10 Major Electronics sells 85,000 personal stereos each year at a price per unit of $55. All sales are on credit; the terms are 3_15, net 40. The discount is taken by 40 percent of the customers. What is the investment in accounts receivable?
In reaction to a competitor, Major Electronics is considering changing its credit terms to
5_15, net 40, to preserve its sales level. Describe qualitatively how this policy change will affect the company's investment in accounts receivable.

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