Alpine Wear Inc.

TO: Billy Joe Durango

FROM: (Ann’s assistant)

DATE: April 7, 2014

SUBJECT: Line of Credit

Problem:

Alpine Wear’s bank has asked Alpine Wear to provide an estimate of their borrowing requirements for the remainder of 2000 and the first half of 2001. Due to the rapid growth Alpine Wear has experienced over the past few years, no one has taken the time to prepare a cash budget. Alpine Wear will need to create a cash budget from scratch.

Alpine Wear needs to determine how much of a line of credit to ask the bank for in order to meet their own requirements of keeping a minimum cash balance of $300,000 on hand. Alpine Wear is concerned about the maximum cash shortfall for the first six months of the planning period and feels that a line of credit of $400,000 will be sufficient. Alpine Wear needs to analyze the data to see if the $400,000 line of credit is enough or too little, if $400,000 is not correct then Alpine Wear will need to find out what amount needs to be used.

Facts:

* Credit policy is 1.5/10 net 30

* 25% of customers take the discount

* 65% of customers pay within 30 days

* 10% of customers pay late, averaging 60 days after the invoice date

* Monthly budgeting

* Discount purchases are collected in the month of the sale

* Net sale in the month after the sale

* Late sales are two months after the sale

* Begins production two months before the sale date

* Variable costs total 60% of forecasted sales

* 20% for materials

* 40% for labor

* All material is purchased just before production begins or two months before the sale of the finished goods

* 50% of material cost is paid the month they receive the material

* The remaining 50% is paid the month after or one month prior to the sale

* 30% of labor is paid two months before the sale

* 70% of labor is paid one month before the sale

* Administration expenses per month are $90,000

* Leasing obligations a month are...