Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows: Collections from customers: January $246,500, February $435,000. Payments for direct materials: January $155,000, February $240,000 Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred. Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000. Instructions (a) Prepare a cash budget for January and February. (b) Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows: Collections from customers: $375,000 Payments for direct materials: $206,000 Direct labor: Wages paid in March $116,000 Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000. Selling and administrative expenses: $51,600. This cost is exclusive of depreciation. Marketable securities of $50,000 can be sold if needed for additional cash. Prepare a cash budget for March assuming that the company does not sell the marketable securities. Prepare a cash budget for March assuming that the company sells the marketable securities QUESTIONS: What is the maximum amount the company can borrow during March if the company does not sell the marketable securities? Does this provide the company with an adequate ending cash balance? Explain in detail. Comment on the status of the company’s cash budget for March with or without selling the marketable securities. Detail any concerns and possible resolution to identified issues.

Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows: Collections from customers: January $246,500, February $435,000. Payments for direct materials: January $155,000, February $240,000 Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred. Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000. Instructions (a) Prepare a cash budget for January and February. (b) Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows: Collections from customers: $375,000 Payments for direct materials: $206,000 Direct labor: Wages paid in March $116,000 Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000. Selling and administrative expenses: $51,600. This cost is exclusive of depreciation. Marketable securities of $50,000 can be sold if needed for additional cash. Prepare a cash budget for March assuming that the company does not sell the marketable securities. Prepare a cash budget for March assuming that the company sells the marketable securities QUESTIONS: What is the maximum amount the company can borrow during March if the company does not sell the marketable securities? Does this provide the company with an adequate ending cash balance? Explain in detail. Comment on the status of the company’s cash budget for March with or without selling the marketable securities. Detail any concerns and possible resolution to identified issues.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows:

Collections from customers: January $246,500, February $435,000.
Payments for direct materials: January $155,000, February $240,000
Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred.
Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred.
Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred.
Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000.

Instructions

(a) Prepare a cash budget for January and February.

(b) Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows:

Collections from customers: $375,000
Payments for direct materials: $206,000
Direct labor: Wages paid in March $116,000
Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000.
Selling and administrative expenses: $51,600. This cost is exclusive of depreciation.
Marketable securities of $50,000 can be sold if needed for additional cash.

Prepare a cash budget for March assuming that the company does not sell the marketable securities.
Prepare a cash budget for March assuming that the company sells the marketable securities

QUESTIONS:

What is the maximum amount the company can borrow during March if the company does not sell the marketable securities? Does this provide the company with an adequate ending cash balance? Explain in detail.
Comment on the status of the company’s cash budget for March with or without selling the marketable securities. Detail any concerns and possible resolution to identified issues.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.