P10.44A (LO 4) Rotech Co. began operations in January 2021. The information below is for Rotech Co.'s operations for the three months from January to March (the first quarter) of 2022: Expenses for Quarter 1 Depreciation Factory overhead Income taxes $35,000 15,000 25,000 Payroll 29,000 Selling costs (2% commission on sales) 12,000 Administrative costs 15,000 Costs are assumed to be incurred evenly throughout the year, with the exception of depreciation and income taxes. Depreciation on new assets is first taken in the quarter after the quarter in which they are purchased. Income taxes are payable in semi-annual instalments on the first day of each six-month period, based on last year's actual taxes of $30,000. Other information: 1. Sales (made evenly throughout the quarter) Quarter 1 Quarter 2 Quarter 3 (actual) (forecast) (forecast) $600,000 400,000 800,000 Collections from sales are as follows: 50% in the quarter of sale; 45% in the following quarter; 5% uncollectible. 2. Purchases (made evenly throughout the quarter) Quarter 1 (actual) $300,000 The gross margin ratio is constant at 40%. Cash payments for purchases are as follows: 50% in the quarter of purchase and 50% in the following quarter. Merchandise purchased during a quarter would include 25% of the next quarter's forecast sales. 3. The company purchased capital equipment for $150,000 in February 2021. The estimated useful life of this equipment is 10 years; it has no estimated scrap value. 4. Dividends of $20,000 are declared on the last day of each quarter and are paid at the end of the next month. 5. The cash balance in the bank at the end of the first quarter is $45,000. Instructions a. Prepare a cash budget for Rotech Co. for the second quarter of 2022. Show all your supporting calculations. Ending cash balance: $128,000 b. List three advantages of budgeting.
P10.44A (LO 4) Rotech Co. began operations in January 2021. The information below is for Rotech Co.'s operations for the three months from January to March (the first quarter) of 2022: Expenses for Quarter 1 Depreciation Factory overhead Income taxes $35,000 15,000 25,000 Payroll 29,000 Selling costs (2% commission on sales) 12,000 Administrative costs 15,000 Costs are assumed to be incurred evenly throughout the year, with the exception of depreciation and income taxes. Depreciation on new assets is first taken in the quarter after the quarter in which they are purchased. Income taxes are payable in semi-annual instalments on the first day of each six-month period, based on last year's actual taxes of $30,000. Other information: 1. Sales (made evenly throughout the quarter) Quarter 1 Quarter 2 Quarter 3 (actual) (forecast) (forecast) $600,000 400,000 800,000 Collections from sales are as follows: 50% in the quarter of sale; 45% in the following quarter; 5% uncollectible. 2. Purchases (made evenly throughout the quarter) Quarter 1 (actual) $300,000 The gross margin ratio is constant at 40%. Cash payments for purchases are as follows: 50% in the quarter of purchase and 50% in the following quarter. Merchandise purchased during a quarter would include 25% of the next quarter's forecast sales. 3. The company purchased capital equipment for $150,000 in February 2021. The estimated useful life of this equipment is 10 years; it has no estimated scrap value. 4. Dividends of $20,000 are declared on the last day of each quarter and are paid at the end of the next month. 5. The cash balance in the bank at the end of the first quarter is $45,000. Instructions a. Prepare a cash budget for Rotech Co. for the second quarter of 2022. Show all your supporting calculations. Ending cash balance: $128,000 b. List three advantages of budgeting.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:P10.44A (LO 4) Rotech Co. began operations in January 2021. The information below is for Rotech Co.'s operations for the three months from January to March (the first quarter) of 2022:
Expenses for Quarter 1
Depreciation
Factory overhead
Income taxes
$35,000
15,000
25,000
Payroll
29,000
Selling costs (2% commission on sales) 12,000
Administrative costs
15,000
Costs are assumed to be incurred evenly throughout the year, with the exception of depreciation and income taxes. Depreciation on new assets is first taken in the quarter after the quarter in which they are purchased. Income taxes are payable in semi-annual instalments on the first day of each six-month period, based on last year's actual taxes of
$30,000. Other information:
1. Sales (made evenly throughout the quarter)
Quarter 1
Quarter 2
Quarter 3
(actual)
(forecast)
(forecast)
$600,000
400,000
800,000
Collections from sales are as follows: 50% in the quarter of sale; 45% in the following quarter; 5% uncollectible.
2. Purchases (made evenly throughout the quarter)
Quarter 1
(actual)
$300,000
The gross margin ratio is constant at 40%.
Cash payments for purchases are as follows: 50% in the quarter of purchase and 50% in the following quarter. Merchandise purchased during a quarter would include 25% of the next quarter's forecast sales.
3. The company purchased capital equipment for $150,000 in February 2021. The estimated useful life of this equipment is 10 years; it has no estimated scrap value.
4. Dividends of $20,000 are declared on the last day of each quarter and are paid at the end of the next month.
5. The cash balance in the bank at the end of the first quarter is $45,000.
Instructions
a. Prepare a cash budget for Rotech Co. for the second quarter of 2022. Show all your supporting calculations.
Ending cash balance: $128,000
b. List three advantages of budgeting.
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