Case Study: Cash Budget For Cotton And Linen

Homework 10

1) Decision Case 22-2

1. a) Cash Budget for Cotton and Linen

Anne Manuson

Cash Budget - Cotton

4 months until 31st December 2011

Beginning Cash Balance 25

Cash receipts:

Cotton Sales (25 x (0.9x$20))

450

Cash available 475

Cash disbursement

- Account Payable

Total Cash Disbursement

74

(74)

Budgeted Cash Income $401

Anne Manuson

Cash Budget - Linen

4 months until 31st December 2011

Beginning cash balance 25

Cash receipts: Linen sales (15 x (0.90 x $50)) 675

Cash available 700

Cash disbursements: Account payable Cost of linen ($15 x 18) Purchase of new loom

Total cash disbursements 74 270 1,000 (1,344)

Cash balance before financing (644)

Financing of cash deficiency:

Borrowing

Principal payment

Interest payment ($1,000 × 0.18 × 4/12) 1,000 (200) (60)

Total effect of financing 740

Budgeted Cash Income $ 96

b) Income Statements

Anne Magnuson

Budgeted Income Statement - Cotton

4 months until 31st December 2011

Sales ($20 x 25) 500

Less: COGS ($7 x 25) (175)

Gross Profit 325

Less: Operating Expenses

Sales Commission ($20 × 10% x 25)

Depreciation (Old loom: $10 x 4 months) 50 40 (90)

Net Income $ 235

Anne Magnuson, Weaver

Since this is more like a hobby to her, she might not be strictly focused on cash. One of the factors that might affect her decision can be creativity. Instead of simply working with cotton, she might want to add more materials to her collections; hence, she might want to add linen. Another nonfinancial factor might be legacy. She might want to leave this hobby as a legacy to her children or even grandchildren. A newer loom has the probability of lasting longer. Hence, she might want to buy it. In general, there can be many factors that can affect her decision and, again, money itself is not what usually makes people happy – there are other important