Response to the following :
A garden supply company has the following business transaction estimates relating to the third quarter of 2018.
$
Credit Sales 160960
Cash Sales 122104
Receipts from Accounts Receivable 97546
Wages 60080
Office Furniture 12109
Prepayments 4722
Administrative Expense 18818
Depreciation on Office Furniture 1454
Depreciation on PPE 35000
Provision for doubtful debts 1454
Receipt of Loan 20000
Credit Purchases 85450
Payments of Accounts Payable 69110
Accrued Wages and other expenses 9854
Prepayments - Other 1597
The cash balance at 1 July 2018 was $106826.
Required
1. Prepare a cash budget for the quarter ending 30 September 2018.
2. The garden supply company is considering introducing various aged trees to their product range in 2019. They have provided the following information relating to its planned activities.
I year old 2 years old 3 years old
Sales mix 245,000 125,000 75,000
Selling price $15 $25 $40
Variable cost/unit 10 16 25
Total fixed cost = $351,900
Required
a. Calculate the contribution margin, sales mix and weighted average cost margin for each product. Also calculate the break-even point in total units and units per product based on the 2019 data.
b. Management is concerned about competition for some of its trees, and wants to alter its sales mix of trees. The total number of trees forecast to be sold remains as per question 2a. This initiative would increase annual fixed costs by $60 000 and alter the sales mix to 40 percent for 1 year old trees, 30 per cent for 2 years old trees and 30 per cent for 3 years old trees . On the available data, would you recommend the initiative? Show workings.
3. The garden supply company is also considering buying a small truck which costs $126 500 and is expected to earn annual net cash inflows of $63 400, $57 400, $47 000 and $39 900, before it wears out sufficiently to be unreliable and must be sold for an estimated $17 400.
Required
a. If funds can earn 5 per cent, what is the small trucks NPV?
b. If funds earn 8 per cent, what is the small trucks NPV?
c. Advise management on your recommendation regarding purchase of the small truck subsequent to your NPV calculations.
d. What advice would you give management if the required payback period was two years?
Show calculations for a, b and d.