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	$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 also 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.
  

	Harry’s Carryout Stores Cash Receipts Schedule November December January February March Sales Credit sales Cash sales One month after sale Two months after sale Total cash receipts $0 $0 $0

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

	Harry’s Carryout Stores Cash Payments Schedule January February March Payments for purchases Labor expense Selling and administrative Overhead Taxes Dividends Total cash payments $0 $0 $0

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 Cash Payments Schedule January February March Total cash receipts Total cash payments Net cash flow 0 0 0 Beginning cash balance Cumulative cash balance 0 0 0 Monthly loan (or repayment) Ending cash balance 0 0 0 Cumulative loan balance

Answer 1

a.

Harry's Carryout Store Cash Receipts Schedule
	November	December	January	February	March
Sales	$ 440,000	$ 460,000	$ 520,000	$ 560,000	$ 470,000
Credit Sales	220,000	230,000	260,000	280,000	235,000
Cash Sales	220,000	230,000	260,000	280,000	235,000
One Month After Sale	0	110,000	115,000	130,000	140,000
Two Months After Sale	0	0	110,000	115,000	130,000
Total Cash Receipts			$ 485,000	$ 525,000	$ 505,000

b.

Harry's Carryout Stores Cash Payments Schedule
	January	February	March
Payments for Purchases	$ 182,000	$ 196,000	$ 164,500
Labor Expense	260,000	280,000	235,000
Selling and Administrative Expense	26,000	28,000	23,500
Overhead Expense	25,000	25,000	25,000
Taxes	9,200	0	0
Dividends	0	0	8,000
Total Cash Payments	$ 502,200	$ 529,000	$ 456,000

c.

Harry's Carryout Stores Cash Budget
	January	February	March
Total Cash Receipts	$ 485,000	$ 525,000	$ 505,000
Total Cash Payments	- 502,200	- 529,000	- 456,000
Net Cash Flow	- 17,200	- 4,000	49,000
Beginning Cash Balance	104,000	99,000	99,000
Cumulative Cash Balance	86,800	95,000	148,000
Monthly Loan ( or Repayment)	12,200	4,000	(16,200)
Ending Cash Balance	99,000	99,000	131,800
Cumulative Loan Balance	12,200	16,200	0