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	$540,000		January	$620,000		April forecast	$510,000
December	560,000		February	660,000
			March	520,000

Of the firm’s sales, 30 percent are for cash and the remaining 70 percent are on credit. Of credit sales, 35 percent are paid in the month after sale and 65 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 45 percent of sales and is paid for in the month of sales. Selling and administrative expense is 10 percent of sales and is paid in the month of sales. Overhead expense is $20,000 in cash per month.

Depreciation expense is $11,700 per month. Taxes of $9,700 will be paid in January, and dividends of $10,500 will be paid in March. Cash at the beginning of January is $114,000, and the minimum desired cash balance is $109,000.

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

Description	November	December	January	February	March	April
Sale revenue	$          540,000	$      560,000	$         620,000	$       660,000	$       520,000	$510,000
Cash Sale-30%	$          162,000	$      168,000	$         186,000	$       198,000	$       156,000	$153,000
Credit Sale-70%	$          378,000	$      392,000	$         434,000	$       462,000	$       364,000	$357,000
Credit sale collection- next month-35%		$      132,300	$         137,200	$       151,900	$       161,700	$127,400
Credit sale collection- following month-65%			$         245,700	$       254,800	$       282,100	$300,300
Monthly sale collection			$         568,900	$       604,700	$       599,800
Material cost-35% of sale	$          189,000	$      196,000	$         217,000	$       231,000	$       182,000	$178,500
Closing inventory- next month use	$          196,000	$      217,000	$         231,000	$       182,000	$       178,500	$          -
Opening inventory- Previous month inventory		$      196,000	$         217,000	$       231,000	$       182,000	$178,500
Material purchase= (cl stock+consumption - opening stock)		$      217,000	$         231,000	$       182,000	$       178,500
Material payment-next month			$         217,000	$       231,000	$       182,000
Labor-45% of sale			$         279,000	$       297,000	$       234,000
Selling expense-10% of sale			$           62,000	$         66,000	$         52,000
Cash budget			January	February	March
Opening cash			$         114,000	$       109,000	$       109,000
Budgeted Receipts			$         568,900	$       604,700	$       599,800
Budgeted Cash payments
Material			$       (217,000)	$     (231,000)	$     (182,000)
Labor			$       (279,000)	$     (297,000)	$     (234,000)
Selling expense			$         (62,000)	$       (66,000)	$       (52,000)
Overhead			$         (20,000)	$       (20,000)	$       (20,000)
Taxes			$           (9,700)	$                -	$                -
Dividend			$                  -	$                -	$       (10,500)
Preliminary cash balance			$           95,200	$         99,700	$       210,300
Borrow/(paid back)			$           13,800	$           9,300	$       (23,100)
Closing cash balance			$         109,000	$       109,000	$       187,200