Bobcat Printingmakes customt---shirts and other promotional products for student organizations and businesses. It is beginning its first year of operations and needs to plan for its first quarter of operations. They would like to maximize their profits, and understand that accurate budgeting can help achieve that goal. The budgets will be prepared based on the following information: a. Sales are budgeted at $30,000 for Month 1, $32,500 for Month 2, and $34,000 for Month 3. All sales will be done on account. Company does not expect to have any cash sales. b. Sales are collected 50% in the month of the sale, and 50% in the month following the sale. c. Cost of Goods Sold is budgeted at 40% of Sales. d. Monthly selling, general, and administrative expenses are as follows: donations are 10% of sales; advertising is 3% of sales; miscellaneous is 1% of sales; and rent is $5,000 per month. All SG&A expenses are paid in the month they are incurred. e. Since all of the orders are custom made, no inventory is kept on hand at the end of the month. f. Inventory purchases are paid in full in the month following the purchase. g. Bobcat Printing is planning to purchase a building in Month 3 for $8,000 in cash. h. They would like to maintain a minimum cash balance of $2,500 at the end of each month. The company has an agreement with a local bank that allows them to borrow, with a total line of credit of $20,000. The interest rate on these loans is 1% per month (12% annual). They would as far as able, repay the loan on the last day of the month when it has enough cash to pay the full balance and maintain an adequate ending cash balance. i. The owner makes a draw of $5,000 every month. (Note: sole proprietors and partnerships take owner’s draws, while stockholders receive dividends). Based upon the information provided, complete the operating budgets provided in the excel template, and answer the questions in TRACS. When making calculations always round up (for example: 33 × 7% = 2.31, round up to 3.00). Check Figures: Gross Margin $57,900 Total assets $27,973 Ending Retained Earnings $14,373
1. What is the projected ending cash balance for Month 1? A. $2,500 B. $1,100 C. $8,000 D. None of the above.
2. Will Bobcat Printing need to borrow money in Month 1? A. Yes B. No
3. If you answered "Yes" that Bobcat Printing had to borrow money in the first month, how much money will it need to borrow to ensure it does not have a cash shortage? A. $1,700 B. $1,400 C. $500 D. Bobcat Printing does not borrow in the first month.
4. If Bobcat Printing borrowed money in Month 1, what is the projected interest expense it will incur for borrowing the money? A. $140 B. Bobcat Printing will not have interest because it does not need to borrow money in Month 1. C. $17 D. $170 E. $14
5. Bobcat Printing will have a cash surplus in Month 2. True False
6. If Bobcat Printing has a projected cash surplus in Month 2, how much cash will it repay for borrowing on its line of credit? A. Bobcat Printing will not have a cash surplus, therefore it will need to borrow more money in Month 2. B. $1,100 C. $1,700 D. $1,400
7. Bobcat Printing will need to borrow money in Month 3. True False
8. If Bobcat Printing is projected to have a cash shortage in Month 3, how much is the shortage? A. Bobcat Printing will not have a projected cash shortage in Month 3. B. $1,905 C. $1,250 D. $2,205.