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 forecasted sales figures:

Actual Forecast Additional Information

November……. $200,000 January………. $280,000 April Forecast……… $360,000

December……. $262,000 February…….. $320,000

March………... $340,000

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 following month's expected sales. Materials are paid for in the month after they are received. Labor expense is 40 percent of sales and is paid for in the month of sales. Selling and administrative expense is 5 percent of sales and is also paid in the month of sales. Overhead expense is $25,000 in cash per month.

Depreciation expense is $10,000 per month. Taxes of $8,000 will be paid in January, and dividends of $2,600 will be paid in March. Cash at the beginning of January is $80,000, and the minimum desired cash balance is $75,000.

For January, February, and March, prepare a schedule of monthly cash receipts, monthly cash payments, and a complete monthly cash budget with borrowings and repayments.

Answer 1

Harry's Carryout Stores Cash Budget For January, February and March
	January	February	March
Beginning cash balance	$ 80,000	$ 80,160	$ 103,600
Add: Cash receipts	243,160	288,440	311,200
Total cash available	$ 323,160	$ 368,600	414,800
Less: Cash Disbursements for
Material Purchases	$ 84,000	$ 96,000	$ 102,000
Labor	112,000	128,000	136,000
Selling and Administrative Expenses	14,000	16,000	17,000
Overhead	25,000	25,000	25,000
Taxes	8,000	0	0
Dividends	0	0	2,600
Total Cash Disbursements	243,000	265,000	282,600
Cash Surplus ( Deficiency)	80,160	103,600	132,200
Financing
Borrowing	0	0	0
Repayment	0	0	0
Interest	0	0	0
Total Financing	0	0	0
Ending cash balance	$ 80,160	$ 103,600	$ 132,200

a.

Schedule of Cash Receipts
	January	February	March
Cash Sales	$ 112,000	$ 128,000	$ 136,000
November credit sales	84,000
December credit sales	47,160	110,040
January credit sales		50,400	117,600
February credit sales			57,600
Total Cash Receipts	$ 243,160	$ 288,440	$ 311,200

b.

Schedule of Cash Disbursements for Material Purchases
	January	February	March
Purchases of December	$ 84,000
Purchases of January		$ 96,000
Purchases of February			$102,000
Total Cash Disbursements	$ 84,000	$ 96,000	$ 102,000