The ceo should also not set targets that are very

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Fundamentals of Financial Management
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Chapter 14 / Exercise 14-1
Fundamentals of Financial Management
Brigham
Expert Verified
adhering to codes of conduct and following appropriate norms and values. The CEO should also not set targets that are very difficult or impossible to achieve. Such targets demotivate employeesbecause they give up on trying to achieve them. 14.Preparing a budget helps Skulas manage costs based on revenues and production needs,look for opportunities to increase efficiencies, reduce costs, particularly in areas where costs arehigh, coordinate and communicate across different parts of the organization, create a frameworkfor judging performance and facilitating learning, and motivate management and employees toachieve “stretch” targets of higher revenues and lower costs.
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Fundamentals of Financial Management
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Chapter 14 / Exercise 14-1
Fundamentals of Financial Management
Brigham
Expert Verified
6-38(30 min.) Cash budgeting, chapter appendix.Note: This problem is independent of the previous Problem 6-37. All the informationneeded to solve Problem 6-38 is given in Problem 6-38. There is no connection betweenProblem 6-37 and Problem 6-38.1.Projected SalesMayJuneJulyAugustSeptemberOctoberSales in units480520750500460440Revenues (Sales in units × $650)$312,000$338,000$487,500$325,000$299,000Collections of ReceivablesMayJuneJulyAugustSeptemberOctoberFrom sales in:May (15%  $312,000)$ 46,800June (45%; 15%  $338,000)152,100$ 50,700July (40%; 45%; 15%  $487,500)195,000219,375$ 73,125August (40%; 45%  $325,000)130,000146,250September (40%  $299,000)119,600Total$393,900$400,075$338,975Calculation of PayablesMayJuneJulyAugustSeptemberOctoberMaterial and Labor Use, UnitsBudgeted production750500460440Direct materialsWood (board feet)6,7504,5004,1403,960Fiberglass (yards)7,5005,0004,6004,400Direct manuf. labor (hours)3,7502,5002,3002,200Disbursement of PaymentsDirect materialsWood (6,750; 4,500; 4,140  $34)$229,500$153,000$140,760Fiberglass (7,500; 5,000; 4,600  $9)67,50045,00041,400Direct manuf. labor(2,500; 2,300; 2,200  $29) 72,50066,70063,800Interest payment (12%  $60,000 ÷12) 600600600Variable Overhead CalculationVariable overhead rate$ 7$ 7$ 7Overhead driver (direct manuf. labor-hours)2,5002,3002,200Variable overhead expense$ 17,500$ 16,100$ 15,40014
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Cash Budget for the months of July, August, September 2015JulyAugustSeptemberBeginning cash balance$ 14,000$ 8,300$114,975Add receipts: Collection of receivables393,900400,075338,975Total cash available$407,900$408,375$453,950Deduct disbursements:Material purchases$297,000$198,000$182,160Direct manufacturing labor72,50066,70063,800Variable costs17,50016,10015,400Fixed manuf. and nonmanuf. costs12,00012,00012,000Interest payments600600600Total disbursements399,600293,400273,960Ending cash balance$ 8,300$114,975$179,9902.Yes. Skulas has a budgeted cash balance of $179,990 on 9/30/2015, and so it will be in a position to pay off the $60,000 1-year note on October 1, 2015.3.No. Skulas does not maintain a $14,000 minimum cash balance in July. To maintain a $14,000 cash balance in each of thethree months, it could perhaps encourage its customers to pay earlier by offering a discount. Alternatively, Skulas could seekshort-term credit from a bank.4.Skulas’ managers prepare a cash budget in addition to the operating income budget to plan cash flows to ensure that thecompany has adequate cash to pay vendors, meet payroll, and pay operating expenses as these payments come due. Skulas could be very profitable on an accrual accounting basis, but the pattern of cash receipts from revenues might be delayed and result in insufficient cash being available to make scheduled payments for its expenses. Skulas’ managers may then need to

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