The ZYX Corporation Is Planning to Request a Line of Credit

question 48

Essay

The ZYX Corporation is planning to request a line of credit from its bank and wants to estimate its cash needs for the month of September.The following sales forecasts have been made for 2014:
Collection estimates were obtained from the credit collection department as follows: 20% collected within the month of sale; 70% collected the first month following the sale; and 10% collected the second month following the sale.Payments for labour and raw materials are typically made in the month in which these costs are incurred.Total labour and raw material costs each month are 50% of sales.General administrative expenses are $30,000 per month, lease payments are $10,000 per month and depreciation charges are $20,000 per month.The corporation tax rate is 40%; however, no corporate taxes are paid in September.Prepare a cash budget for September.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs and treats fixed manufacturing overhead as a period cost.

Operating Income

Income generated from regular business operations, excluding revenues and expenses from non-operating activities.

Inventory

The overall quantity of products and materials in possession of a company, intended for future sale or to be used in manufacturing.

Variable Costing

Variable Costing is a costing method that only includes variable costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed manufacturing overhead.