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 Additional Information November 680,000 January $760,000 April forecast S580,000 March 590,000 Of the firm's sales, 45 percent are for cash and the remaining 55 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 percent are paid in the second month after the sale. Materials cost 25 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 15 percent of sales and is also paid in the month of sales. Overhead expense is $40,000 in cash per month Depreciation expense is $12,400 per month. Taxes of $10,400 will be paid in January, and dividends of $14,000 will be paid in March. Cash at the beginning of January is $128,000, and the minimum desired cash balance is $123,000

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

Schedule of monthly Cash receipts for January, Feb & March :-

	November	December	January	February	March
Sales	680000	700000	760000	800000	590000
Credit sales	374000 (55% of 680000)	385000 (55% of 700000)	418000 (55% of 760000)	440000 (55% of 800000)	324500 (55% of 590000)
Cash sales (a)			342000 (45% of 760000)	360000 (45% of 800000)	265500 (45% of 590000)
One month after sale (b)			154000 (40% of 385000)	167200 (40% of 418000)	176000 (40% of 440000)
Two months after sales (c)			224000 (60% of 374000)	231000 (60% of 385000)	250800 (60% of 418000)
Total cash receipts (a+b+c)			$720000	$758200	$692300

B . Schedule of monthly Cash payments from Jan, Feb, Mar

	January	February	March
Payment for purchases	190000 (25% of 760000)	200000 (25% of 800000)	147500 (25% of 590000)
Labor expenses	380000 (50% of 760000)	400000 (50% of 800000)	295000 (50% of 590000)
Selling & administrative	114000 (15% of 760000)	120000 (15% of 800000)	88500 (15% of 590000)
Overhead	40000	40000	40000
Taxes	10400	0	0
Dividends	0	0	14000
Total cash payments	$734400	$760000	$585000

C . Monthly Cash budget with borrowings and repayment for Jan, Feb, Mar :-

	January	February	March
Total cash receipts	720000	758200	692300
Total cash payments	734400	760000	585000
Net cash flow	(14400)	(1800)	107300
Beginning Cash balance	128000	123000	123000
Cumulative Cash balance	113600	121200	230300
Monthly loan (or repayment )	9400	1800	(11200)
Ending cash balance	123000	123000	219100
Cumulative loan balance	9400	11200 (9400+1800)	0