Question

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures:

Actual			Forecast			Additional Information
November	$440,000		January	$520,000		April forecast	$460,000
December	460,000		February	560,000
			March	470,000

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 35 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 5 percent of sales and is paid in the month of sales. Overhead expense is $25,000 in cash per month.

Depreciation expense is $11,200 per month. Taxes of $9,200 will be paid in January, and dividends of $8,000 will be paid in March. Cash at the beginning of January is $104,000, and the minimum desired cash balance is $99,000.

a. Prepare a schedule of monthly cash receipts for January, February, and March.
  

b. Prepare a schedule of monthly cash payments for January, February, and March.
  

c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

  

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures:

Actual			Forecast			Additional Information
November	$440,000		January	$520,000		April forecast	$460,000
December	460,000		February	560,000
			March	470,000

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 35 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 5 percent of sales and is paid in the month of sales. Overhead expense is $25,000 in cash per month.

Depreciation expense is $11,200 per month. Taxes of $9,200 will be paid in January, and dividends of $8,000 will be paid in March. Cash at the beginning of January is $104,000, and the minimum desired cash balance is $99,000.

a. Prepare a schedule of monthly cash receipts for January, February, and March.
  

b. Prepare a schedule of monthly cash payments for January, February, and March.
  

c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

  

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures:

Actual			Forecast			Additional Information
November	$440,000		January	$520,000		April forecast	$460,000
December	460,000		February	560,000
			March	470,000

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 35 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 5 percent of sales and is paid in the month of sales. Overhead expense is $25,000 in cash per month.

Depreciation expense is $11,200 per month. Taxes of $9,200 will be paid in January, and dividends of $8,000 will be paid in March. Cash at the beginning of January is $104,000, and the minimum desired cash balance is $99,000.

a. Prepare a schedule of monthly cash receipts for January, February, and March.
  

b. Prepare a schedule of monthly cash payments for January, February, and March.
  

c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

  

Answer 1

Schedule of monthly cash receipts
	Jan	Feb	Mar
Cash Sales	$260,000	$280,000	$235,000
Collection of credit sales
50% in one month after	115000	$130,000	$140,000
50% in two months after	$110,000	$115,000	$130,000
Expected Collections	$485,000	$525,000	$505,000
Schedule of monthly cash payments
	Jan	Feb	Mar
Material	$182,000	$196,000	$164,500
Labor	$260,000	$280,000	$235,000
Selling and Admin Expense	$26,000	$28,000	$23,500
Overhead	25000	25000	25000
Taxes	9200
Dividends			8000
Expected Payments	$502,200	$529,000	$456,000
Cash Budget	Jan	Feb	Mar
Beginning Cash Balance	$104,000	$99,000	$99,000
Add: Cash Receipts	$485,000	$525,000	$505,000
Total Cash Available	$589,000	$624,000	$604,000
Less: Cash Payments	$502,200	$529,000	$456,000
Ending balance before loan	$86,800	$95,000	$148,000
Loan	$12,200	$4,000	0
Repayment	0	0	($16,200)
Ending cash balance	$99,000	$99,000	$131,800