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
…show more content…
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