Question

Jim Daniels Health Products has eight stores. The firm wants to expand by two more stores and needs a bank loan to do this. Mr. Hewitt, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. Following are actual and forecasted sales figures:

Actual			Forecast			Additional Information
November	$600,000		January	$680,000		April forecast	$730,000
December	620,000		February	720,000
			March	740,000

Of the firm's sales, 40 percent are for cash and the remaining 60 percent are on credit. Of credit sales, 30 percent are paid in the month after sale and 70 percent are paid in the second month after the sale. Materials cost 30 percent of sales and are purchased and received each month in an amount sufficient to cover the current month’s expected sales. Materials are paid for in the month they are received. Labour expense is 50 percent of sales and is paid in the month of sales. Selling and administrative expense is 8 percent of sales and is also paid in the month of sales. Overhead is $35,000 in cash per month; Amortization expense is $12,000 per month. Taxes of $9,900 will be paid in January and dividends of $5,500 will be paid in March. Cash at the beginning of January is $120,000, and the minimum desired cash balance is $115,000.

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

Jim Daniels Health Products Cash Receipts Schedule
	November	December	January	February	March	April
Sales	$	$	$	$	$	$
Credit sales
Cash sales
Collections in the month   after credit sales
Collections two months   after credit sales
Total cash receipts			$	$	$

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

Jim Daniels Health Products Cash Payments Schedule
	January	February	March
Payments for purchases	$	$	$
Labour expense
Selling and administrative expense
Overhead
Taxes
Dividends
Total cash payments	$	$	$

c. Prepare a schedule of monthly cash budget with borrowings and repayments for January, February and March. (Do not leave any empty spaces; input a 0 wherever it is required. Negative answers and amounts to be deducted should be indicated by a minus sign.)

Jim Daniels Health Products Cash Budget
	January	February	March
Total cash receipts	$	$	$
Total cash payments
Net cash flow
Beginning cash balance
Cumulative cash balance
Monthly loan or (repayment)
Cumulative loan balance
Ending cash balance	$	$	$

Answer 1