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	$660,000		January	$740,000		April forecast	$570,000
December	680,000		February	780,000
			March	580,000

Of the firm’s sales, 40 percent are for cash and the remaining 60 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 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 35 percent of sales and is paid for in the month of sales. Selling and administrative expense is 20 percent of sales and is paid in the month of sales. Overhead expense is $34,000 in cash per month.

Depreciation expense is $12,300 per month. Taxes of $10,300 will be paid in January, and dividends of $13,500 will be paid in March. Cash at the beginning of January is $126,000, and the minimum desired cash balance is $121,000.

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