Deck 12: Forecasting and Short-Term Financial Planning

Question 1

One of the functions of a finance manager is ________.

A)to forecast for the coming period
B)to forecast for the present period
C)to forecast for the past period
D)to forecast for the present and future periods

Answer 1

A

Question 2

Forecasting entails drawing a financial picture of a company for the ________.

A)year
B)month
C)quarter
D)All of these

Answer 2

D

Question 3

Financial forecasts are seldom right on the money,so to speak,but they do provide a yardstick by which a company can measure ________.

A)its past adherence to its long-term plan
B)its past deviation from its long-term plan
C)its adherence to or deviation from its short-term plan
D)its current deviation from its future plan

Answer 3

C

Question 4

A SOURCE of cash is utility payments.

Question 5

For the month of March,Rogue Retail will have cash receipts of $165,000 and cash disbursements of $150,000.If its beginning cash is $12,000 and its desired reserve is $20,000,what will be its shortfall or excess in cash for the month?

A)-$8,000
B)-$4,000
C)$0
D)$7,000

Question 6

Pixi Boutique will have cash receipts of $57,000 in December and cash disbursements of $51,000 for this month.If its beginning cash is $12,000 and its desired reserve is $9,000,what will its excess be for December?

A)There is no excess but a shortfall.
B)$6,000
C)$9,000
D)$18,000

Question 7

In March,The Wonder Emporium will have cash receipts of $107,000 and cash disbursements of $110,000.If its beginning cash is $6,000 and its desired reserve is $5,000,what will be its shortfall in cash for the month?

A)There is no shortfall in cash but an excess of cash.
B)-$1,000
C)-$8,000
D)-$5,000

Question 8

Northwest Outdoor Store will have cash receipts of $83,000 in December and cash disbursements of $78,000 for this month.If its beginning cash is $3,000 and its desired reserve is $15,000,what will its excess be for December?

A)There is no excess but a shortfall.
B)$6,000
C)$11,000
D)$14,000

Question 9

A USE of cash is interest payments received.

Question 10

Short-term decisions are viewed as decisions that have short-term impacts and can be changed or modified at ________.

A)relatively low costs
B)relatively high costs
C)relatively high time requirements
D)relatively low costs with high time requirements

Question 11

For a firm,bank loans can be a source of cash and interest payments to the bank can be a use of cash.

Question 12

Which of the statements below is FALSE?

A)The ultimate goal of cash management is to have sufficient cash on hand to meet business obligations in a timely and appropriate manner.
B)Although the cash-management process will usually start with inventory forecasting,managers will look at the "final product" first to get an idea of where the company is ultimately heading and why it needs to look at sales forecasts and production schedules.
C)The cash forecast is the analytical tool that estimates the future timing of cash inflow and that projects potential shortfalls and excess.
D)The amount of inventory can be changed with the next order if a product's sales are faster or slower than originally anticipated.

Question 13

Which of the statements below is FALSE?

A)We can separate short-term and long-term decisions into three dimensions: the length of impact,the cost,and the degree of information gathering prior to the decision.
B)The longer the impact and the higher the cost associated with a decision,the greater the time and degree for gathering information on choices and the more complex the decision model.
C)Long-term decisions are called capital budgeting decisions and are typically viewed as decisions that have long-term impacts that are not easily reversed or that can be changed only at great cost.
D)An example of a short-term decision is determining the number of manufacturing facilities that the firm should operate.

Question 14

There are two primary tools used to forecast and set in action a company plan.Which of the tools below is one of these?

A)Statements of retained earnings
B)Profit budgets
C)Income statements
D)Pro forma statements

Question 15

As with a lot of planning,the financial forecast begins with ________ estimates and ________ schedules.

A)sales; production
B)sales; profit
C)dividends; production
D)profits; dividend

Question 16

For June,Rogue River Rafting will have cash receipts of $94,000 and cash disbursements of $75,000.If its beginning cash is $2,000 and its desired reserve is $15,000,what will be its excess in cash for the month?

A)-$11,000
B)-$8,000
C)$0
D)$6,000

Question 17

Briefly explain the difference between a USE of cash and a SOURCE of cash.Give examples of each.Briefly explain why managers want to know the uses and sources of cash.

Question 18

Pancake Castle will have cash receipts of $75,000 in June and cash disbursements of $40,000 for this month.If its beginning cash is $8,000 and its desired reserve is $10,000,what will its excess be for April?

A)There is no excess but a shortfall.
B)$8,000
C)$25,000
D)$33,000

Question 19

Which of the below is a USE of cash?

A)Credit Sales
B)Retirement of debt (paying off loans and bonds)
C)Bank loans
D)Cash sales of equipment or other assets of the company

Question 20

Which of the below is a SOURCE of cash?

A)Cash Sales
B)Wages and Salaries
C)Rent or Lease payments
D)Dividend payments

Question 21

Sales from a company's products and services are the only source of cash inflow.

Question 22

________ consists of items such as the current interest rates,housing starts,gross national product (GNP),disposable income estimates,or other economic indicators.

A)Accounting data
B)Internal data
C)External data
D)Financial data

Question 23

For estimating cash budget timing,the sale of equipment might occur in one month and the tax consequence in another month.

Question 24

Sales made and actual cash received may differ for any particular month.However,sales and cash received must be equal for a calendar year.

Question 25

The sales for October,November,and December are $2,000,$6,000 and $10,000,respectively.For any particular month of sales,the following percentages are received over time in cash for any given month: 20% in cash from that same month of sales; 50% in cash from the previous month's sales; and 30% in cash from the sales from two months ago.What percentage of cash will be received during December compared to the sales for December?

Question 26

We start the process of building a cash forecast with predicting the cash inflow from future sales.This is called ________.

A)a sales forecast
B)a cash forecast
C)a monetary forecast
D)an expense forecast

Question 27

The amount and timing of sales are usually provided by the ________ department.

A)advertising or finance
B)accounting or sales
C)sales or marketing
D)marketing or planning

Question 28

A financial manager needs to know if any of the credit sales will not be paid by customers.This situation will entail a reduction in the estimate of the cash flow due to "bad debts."

Question 29

Managers know that for cash and credit sales completed in one month that all will be recorded as sales revenue in that month,but that the actual cash flow will take place over a longer period of time because of ________.

A)credit sales
B)erosion
C)foreclosure
D)transit time

Question 30

Which of the statements below is FALSE?

A)A key element in a sales forecast is that the timing of the sale and the cash inflow from the sale often happen at different times.
B)The amount and timing of sales are usually provided by the finance department.
C)We start the process of building a cash forecast with predicting the cash inflow from future sales: a sales forecast.
D)The time when a sale is recorded is often different from the time cash is actually received.

Question 31

Which of the statements below is FALSE?

A)The marketing department finds published data related to its product from another state.This is an example of internal data.
B)Once the sales estimate is in,the finance manager must estimate the cash flow from these sales in terms of timing.
C)A company's average cost of installing its product for a customer is an example of internal data.
D)A company could take a simple approach to estimating revenue for the upcoming year by simply averaging the two previous growth rates; taking just the prior year's growth rate; or,using the average dollar increase in sales from the past two years.

Question 32

Which of the statements below is FALSE?

A)A company can take a simple approach to estimating next year's growth in revenue by taking just the prior year's growth rate.
B)A company can take a simple approach to estimating next year's growth in revenue by having a number of departments supply input.
C)A company can take a simple approach to estimating next year's growth in revenue by using the average dollar increase in sales from the past two years.
D)A company can take a simple approach to estimating next year's growth in revenue by averaging the previous two years' annual growth rates.

Question 33

The sales for January,February,and March are $22,000,$36,000 and $50,000,respectively.For any particular month of sales the following percentages are received over time in cash for any given month: 60% in cash from that same month of sales; 30% in cash from the previous month's sales; and 10% in cash from the sales from two months ago.What amount of cash will be received during March?

A)$81,200
B)$50,000
C)$43,000
D)$26,600

Question 34

The sales for January,February,and March are $150,000,$180,000 and $220,000,respectively.For any particular month of sales,the following percentages are received over time in cash: 40% in cash from that same month of sales; 50% in cash from the previous month's sales; and,10% in cash from the sales from two months ago.What amount of cash will be received during March?

A)$93,000
B)$107,500
C)$148,000
D)$193,000

Question 35

Bacon Signs will have cash receipt of $80,000 in December and cash disbursements in December of $70,000.If its beginning cash is $4,000 and its desired reserve is $15,000,what will Bacon Signs' cash situation be at the end of December?

Question 36

The amount of sales a company predicts is a function of two types of data.Which of the types below is one of these two types?

A)Accounting data
B)Internal data
C)Rationing data
D)Legal data

Question 37

________ consists of items such as number of sales personnel in the field and average sales per representative,competitors and alternative products,and production capabilities and schedules as well as other factors known mainly to the company.

A)External data
B)Product data
C)Employee data
D)Internal data

Question 38

Which of the statements below is TRUE?

A)A company's average cost of installing its product for a customer is an example of internal data.
B)A company's success rate in getting contractors to use its product is an example of external data.
C)A marketing department's discovery of published data related to its industry from another country is an example of internal data.
D)A marketing department's discovery of published data related to its product from another state is an example of internal data.

Question 39

Based on the sales forecast,the finance manager estimates the receipt of cash based on cash and ________.

A)credit sales
B)inventory sales
C)accounts receivables
D)net income

Question 40

The sales for October,November and December are $20,000,$22,000 and $28,000,respectively.For any particular month of sales,the following percentages are received over time in cash: 40% in cash from that same month of sales; 40% in cash from the previous month's sales; and,20% in cash from the sales from two months ago.What amount of cash will be received during December?

A)$24,000
B)$18,000
C)$9,600
D)$9,000

Question 41

Which one of the costs below is NOT a production cost?

A)The wages paid to workers
B)The raw materials for manufacturing products
C)The dividends paid to shareholders
D)The shipping costs that get the product to the customer

Question 42

A company estimates the following expenditures: preferred dividends paid of $12,200; wages paid to workers of $79,600; overhead costs of $14,300; raw materials of $25,000; shipping costs of $18,100.What are the total production costs?

A)$131,000
B)$137,000
C)$149,200
D)$153,200

Question 43

Which of the statements below is FALSE?

A)Cash disbursements (expenditures)are closely tied to the sales forecast as these forecasts are typically used for scheduling production.
B)Production costs include the wages paid to workers,the raw materials for manufacturing products,the overhead (such as electricity,water,plant space,and so on),and the shipping costs that get the product to the customer.
C)Once all the expenditures and receipts are determined,a financial manager can determine the exact cash excess or cash shortfall in upcoming periods.
D)It's the timing and the amount of cash flow that is important to the financial manager and estimating these cash outflows is part of the cash forecasting process.

Question 44

In the daily planning for cash or the cash forecast,we want to hone in on the management of cash as it applies to the ________ of the company.

A)short-term borrowing and long-term investing
B)long-term borrowing and short-term investing
C)short-term borrowing and short-term investing
D)long-term borrowing and long-term investing

Question 45

Once all the expenditures and receipts are determined,a financial manager can determine the probability of cash excess or cash shortfall in upcoming periods.

Question 46

The goal of the daily management of cash is to have sufficient cash on hand to pay the bills without carrying ________.

A)excess debt
B)excess sunk costs
C)excess depreciation
D)excess cash

Question 47

Smith Frozen Foods Inc.estimates the following expenditures: total shipping costs of $10,100; wages paid to workers of $39,600; overhead costs of $8,300; raw materials of $15,000; and,dividends and interest paid of $2,200.What is the total production cost from all of these costs?

A)$75,200
B)$61,100
C)$50,100
D)$73,000

Question 48

Cash disbursements or ________ are closely tied to the sales forecast as the sales forecasts are typically used for scheduling production.

A)expenditures
B)receipts
C)revenues
D)sales

Question 49

The timing and the amount of cash flow is important to the financial manager and estimating these cash outflows is part of the ________ process

A)income forecasting
B)revenue forecasting
C)cash forecasting
D)cost forecasting

Question 50

Briefly describe the costs included in the production process.

Question 51

Pharma Pesticides Corp.uses the sales forecast to plan production.The company produces the bug killer "2K Spray" one month in advance of the forecasted sale.The January sales forecast of 380 units will be scheduled for December production.However,the company also notes that sales forecasts and actual sales can differ,and the company has a policy of having 10% in inventory to accommodate sales above forecast.Raw materials for 2K Spray are acquired the month ahead (in this case,November).Wages are paid in the current month of production (December).Utilities are paid a month after production (January),and shipping is paid a month after the sale (two months after production,February).Finally,an inventory count reveals that there are currently 30 units on hand above the projected sales for November (at the start of November when the raw material order is placed).Unit production costs are $500 for raw materials,$300 for wages,$200 for utilities,and $100 for shipping.Determine the month of cash outflow for a December production.What would you need to determine January's cash outflow? What would complicate this process?

Question 52

It is ________ of cash flow that is important to the financial manager.

A)the timing and amount
B)just the timing
C)just the amount
D)None of the above

Question 53

The ________ schedule will usually be based on the ________ forecast.

A)sales; production
B)production; sales
C)forecast; scheduled
D)production; cash

Question 54

Products,but not services,need to be available to customers at the time customers need them.

Question 55

Rogue Distribution Inc.estimates the following expenditures: interest paid of $27,500; wages paid to workers of $94,600; overhead costs of $22,300; raw materials of $35,000; shipping costs of $8,100 and dividends paid to common stockholders of $15,000.What are the total production costs?

A)$149,000
B)$160,000
C)$166,500
D)$187,500

Question 56

Which of the statements below is TRUE?

A)Cash collections are closely tied to the sales forecast as the sales forecasts are typically used for scheduling production.
B)Financing costs include the wages paid to workers,the raw materials for manufacturing products,the overhead (such as electricity,water,plant space,and so on),and the shipping costs that get the product to the customer.
C)Once all the expenditures and receipts are determined,a financial manager can determine the exact cash excess or cash shortfall in upcoming periods.
D)It is the timing and the amount of cash outflow from production that is important to the financial manager and estimating this amount is part of the cash forecasting process.

Question 57

In accounting,the recording of the cost of goods sold occurs at the time of the sale,but the cash flow
may take place over an extended time period.

Question 58

Cash disbursements (expenditures)are not closely tied to the sales forecast as the sales forecasts are not typically used for scheduling production.

Question 59

Bandamere Lighting Inc.uses the sales forecast to plan production.The company produces the magnetic light bulb called "Bright-1" one month in advance of the forecasted sale.The January sales forecast of 38 units of these bulbs will be scheduled for December production.However,the company also notes that sales forecasts and actual sales can differ,and the company has precisely calculated that it needs about 18.42% in inventory to accommodate sales above forecast.Raw materials for Bright-1 are acquired the month ahead (in this case,November).Wages are paid in the current month of production (December).Utilities are paid a month after production (January),and shipping is paid a month after the sale (two months after production,February).Finally,an inventory count reveals that there are currently 3 units on hand above the projected sales for November (at the start of November when the raw material order is placed).Unit production costs are $50 for raw materials,$30 for wages,$20 for utilities,and $10 for shipping.Determine the cash outflows for December's production.

A)Raw material of $1,900 paid in November,Wages of $1,140 paid in December,Utilities of $380 paid in January,Shipping of $760 paid in February
B)Raw material of $1,900 paid in November,Wages of $1,000 paid in December,Utilities of $760 paid in January,Shipping of $380 paid in February
C)Raw material of $1,200 paid in November,Wages of $1,140 paid in December,Utilities of $760 paid in January,Shipping of $380 paid in February
D)Raw material of $2,100 paid in November,Wages of $1,260 paid in December,Utilities of $840 paid in January,Shipping of $420 paid in February

Question 60

Buckeye Inc.uses the sales forecast to plan production.The company produces a glow-in-the-dark cup called "Lights-Out" one month in advance of the forecasted sale.The January sales forecast of 20 units of these cups will be scheduled for December production.However,the company also notes that sales forecasts and actual sales can differ,and the company has a policy of having 20% in inventory to accommodate sales above forecast.Raw materials for Lights-Out are acquired the month ahead (in this case,November).Wages are paid in the current month of production (December).Utilities are paid a month after production (January)and shipping is paid a month after the sale (two months after production,February).Finally,an inventory count reveals that there are currently 4 units on hand above the projected sales for November (at the start of November when the raw material order is placed).Unit production costs are $40 for raw materials,$20 for wages,$10 for utilities,and $5 for shipping.Determine the amounts of cash outflows for December's production.

A)Raw material of $800 paid in November,Wages of $400 paid in December,Utilities of $200 paid in January,Shipping of $100 paid in February
B)Raw material of $800 paid in November,Wages of $400 paid in December,Utilities of $100 paid in January,Shipping of $100 paid in February
C)Raw material of $800 paid in November,Wages of $400 paid in December,Utilities of $200 paid in January,Shipping of $200 paid in February
D)Raw material of $400 paid in November,Wages of $800 paid in December,Utilities of $200 paid in January,Shipping of $100 paid in February

Question 61

Firm E cash sales in January are $100,000,its accounts receivable payments for January are $100,000,its beginning cash for January is $50,000,and there are no other cash inflows for January.Its accounts payable payments for the January are $100,000 and its wages and salaries for January are $100,000,and its interest payments for January are $50,000.What is its net cash flow for January if there are no other cash flows?

A)$50,000
B)-$50,000
C)$150,000
D)-$150,000

Question 62

Clayton Incorporated's cash sales in January are $150,000,its accounts receivable payments for January are $300,000,its beginning cash for January is $75,000,and there are no other cash inflows for January.Its accounts payable payments for January are $250,000 and its wages and salaries for January are $300,000,and its interest payments for January are $25,000.What is its net cash flow for January if there are no other outflows?

A)-$100,000
B)$40,000
C)$15,000
D)-$125,000

Question 63

One method a company may use to handle a cash shortfall is to draw cash from savings.

Question 64

A line of credit is unsecured,that is,there is no pledge of specific assets backing the loan.But companies can pledge assets against borrowed funds.These are called secured loans.

Question 65

Which of the statements below is FALSE?

A)A simple monthly cash flow estimate allows managers to anticipate periods when the company may need to borrow and periods when the company will have excess cash for investing.
B)There is a problem in managing cash if sales are low for several months,causing a negative balance and delaying payments to suppliers or employees.
C)There are four basic ways to handle cash surpluses: Savings; Unsecured Loans (Commercial Paper,Trade Credit,or Banker's Acceptance); Secured Loans (Using Accounts Receivable or Inventories); and Other Sources (Letters of Credit).
D)By far the simplest way to cover a cash deficit is to take money out of one's savings account-provided,of course,that one has sufficient savings to cover the necessary transfer.

Question 66

Banker's acceptances are financial assets sold by a company directly to investors,like bonds and common stock,but with very short maturity dates,while commercial paper is for self-liquidating inventories.

Question 67

In short-term cash management as it pertains to the operations of the firm,which of the below is NOT one of the general objectives?

A)Determining the cash surplus
B)Determining the job satisfaction level of employees
C)Determining the money the company can invest
D)Determining the cash deficit

Question 68

Firm Z accounts payable for the month are $200,000 and its wages and salaries for the month are $100,000.What is its total outgoing cash flow for the month if its interest payments for the month are $50,000,its accounts receivable payments for the month are $100,000,and there are no other cash outflows for the month?

A)$250,000
B)$450,000
C)$350,000
D)Cannot tell because we do not know the beginning cash for the month.

Question 69

A line of credit does not resemble a personal credit card.

Question 70

Firm X cash sales for the month are $300,000 and its accounts receivable payments for the month are $50,000.What is its total incoming cash flow for the month if its beginning cash for the month is $50,000 and there are no other cash inflows for the month?

A)$100,000
B)$150,000
C)$300,000
D)$350,000

Question 71

The following information is for Missouri,Inc.for the month of June: cash sales of $300,000; accounts receivable payments of $100,000; accounts payable payments of $250,000; wages and salaries of $150,000; and,interest payments of $50,000.There are no other cash inflows or outflows for the month of June and its beginning monthly cash balance is $100,000.What is the firm's ending cash balance for June?

A)$0
B)$50,000
C)$100,000
D)$150,000

Question 72

Firm Y accounts payable for the month are $150,000 and its wages and salaries for the month are $100,000.What is its total outgoing cash flow for the month if its interest payments for the month are $50,000 and its beginning cash for the month is $50,000,there are no other cash outflows for the month?

A)$400,000
B)$250,000
C)$300,000
D)$350,000

Question 73

We can condense the items that require cash outflow into basic categories.Which of the below is a basic category?

A)Wages (but not commissions)
B)Accounts receivable
C)Long-term financing expenses (interest payments,dividend payments,issuing costs of debt and equity)
D)All of these

Question 74

We can condense the items that require cash outflow into basic categories.Which of the below is a basic category?

A)Accounts payable for materials and supplies
B)Capital expenditures
C)Wages,taxes,and other operating expenses of the business
D)All of these

Question 75

Firm W cash sales for the month are $150,000 and its accounts receivable payments for the month are $100,000.What is its total incoming cash flow for the month if its beginning cash for the month is $50,000,its wages and salaries for the month are $50,000 and there are no other cash inflows for the month?

A)$150,000
B)$200,000
C)$250,000
D)Cannot tell because we do not know the beginning cash for the month.

Question 76

Which of the following is NOT a possible advantage to holding marketable securities?

A)Price appreciation
B)Dividends
C)Interest earnings
D)All of the above are potential advantages to owning marketable securities.

Question 77

Excess cash is an asset that has a/an ________ due to lost earning power for the company.

A)opportunity cost
B)cash cost
C)sunk cost
D)erosion cost

Question 78

A line of credit is a secured bank loan whereby the bank agrees to lend a company up to a specific amount of cash,at the discretion of the company.In other words,it is just a pre-arranged loan.

Question 79

Often a bank will require a company to pay off its line of credit (return the balance to zero)and keep it there for a specific period of time each year.For example,a requirement might be that the line of credit remains at a zero balance for at least one sixty-day period each year.This is called the clean-up period.

Question 80

Managers in charge of short-term cash outflow direct their attention to cash management as it pertains to the operations of the firm,much as ________.

A)they do with their daily cash needs
B)they do with their long-term cash needs
C)they do with their capital budgeting needs
D)all of these