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 $240,000 January 260,000 February $320,000 April forecast 360,000 380,000 $370,000 December March Of the firm's sales, 40 percent are for cash and the remaining 60 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 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. Labour expense is 40 percent of sales and is paid in the month of sales. Selling and administrative expense is 7 percent of sales and is also paid in the month of sales. Overhead is $29,000 in cash per month; Amortization expense is $10,200 per month. Taxes of $8,200 will be paid in January and dividends of $3,000 will be paid in March. Cash at the beginning of January is $84,000, and the minimum desired cash balance is $79,000. a. Prepare a schedule of monthly cash receipts for January, February and March. Jim Daniels Health Products Cash Receipts Schedule December November January February S March April S S Sales Credit sales Cash sales Collections in the month after credit sales Collections two months after credit sales Total cash receipts

Answer 1

Jim Daniels Health Products Cash Receipts Schedule November December January 320,000 $ 192,000 $ 128,000 $ February 360,000 $ 216,000 $ 144,000 $ March April 260,000 $ 156,000 $ 104,000 $ 380,000 $ 228,000 $ 152,000 $ Sales $ 240,000 370,000 144,000 $ Credit sales $ 222,000 Cash sales 96,000 148,000 Collections in the month after credit sales 28,800 $ 31,200 $ 38,400 $ 43,200 $ 45,600 Collections two months after credit 115,200 $ 124,800 $ 153,600 $ 172,800 sales Total cash receipts $ 274 400 $ 307,200 $ 348,800 Jim Daniels Health Product Cash Payments Schedule February March January Payments for purchases Labour expense 108,000 $ 144,000 $ 25,200 $ 29,000 $ 96,000 114,000 128,000 152,000 Selling and administrative expense Overhead 22,400 $ 26,600 $ 29,000 $ 29,000 Taxes 8,200 Dividends 3,000 Total cash payments $ 306,200 $ 283,600 324,600

Jim Daniels Health Product Cash Budget February March January 307,200 $ 306,200 $ 1,000 $ 79,000 $ 80,000 $ -1,000 $ 3,200 $ 79,000 $ 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 274,400 $ $ 348,800 283,600 $ -9,200 $ 84,000 $ $ 324,600 24,200 79,000 74,800 $ 4,200 $ 4,200 $ 79,000 $ 103,200 $ -3,200 100,000